01 - Technical Indicators

Technical Indicators

Standard momentum and trend indicators used in equity index analysis. These complement the dashboard’s momentum score with additional signal dimensions commonly used in market analysis.

Momentum and Trend Indicators

Metric	Formula	Use
RSI (14-day)	100 − 100/(1 + avg gain/avg loss)	> 70 overbought · < 30 oversold
MACD	EMA(12) − EMA(26), signal = EMA(9) of MACD	Crossover signals trend changes
Bollinger Bands	SMA(20) ± 2×std(20)	Price outside bands = potential reversal
ADX	Average Directional Index	> 25 trending · < 20 range-bound
Golden/Death Cross	SMA(50) crossing SMA(200)	Golden (up) = bullish · Death (down) = bearish

RSI (Relative Strength Index)

Quote

“The RSI is the single most useful indicator I have ever found for determining when prices are overextended.”

— J. Welles Wilder, New Concepts in Technical Trading Systems (1978)

The RSI measures the speed and magnitude of recent price changes to evaluate overbought or oversold conditions.

$\text{RSI}=100-\frac{100}{1+\frac{\text{avg gain (14d)}}{\text{avg loss (14d)}}}$

RSI Level	Interpretation
> 70	Overbought — potential pullback
50–70	Bullish momentum
30–50	Bearish momentum
< 30	Oversold — potential bounce

RSI Divergence

When price makes new highs but RSI fails to confirm (lower highs on RSI), this bearish divergence often precedes reversals. The opposite (price new lows, RSI higher lows) is a bullish divergence.

MACD (Moving Average Convergence Divergence)

$\text{MACD Line}=\text{EMA}(12)-\text{EMA}(26)$ $\text{Signal Line}=\text{EMA}(9\text{ of MACD Line})$ $\text{Histogram}=\text{MACD Line}-\text{Signal Line}$

Signals

• Bullish crossover: MACD crosses above signal line
• Bearish crossover: MACD crosses below signal line
• Zero line cross: MACD crossing zero confirms trend direction

Bollinger Bands

Quote

“Bollinger Bands are not meant to be used in isolation. They are meant to provide a framework within which price action can be assessed.”

— John Bollinger, Bollinger on Bollinger Bands (2001)

$\text{Upper Band}=\text{SMA}(20)+2\times \sigma (20)$ $\text{Lower Band}=\text{SMA}(20)-2\times \sigma (20)$

Price touching the upper band signals potential overbought conditions; touching the lower band signals oversold. Band squeeze (narrowing) often precedes significant moves.

ADX (Average Directional Index)

ADX Value	Trend Strength
< 20	No trend (range-bound)
20–25	Emerging trend
25–50	Strong trend
50–75	Very strong trend
> 75	Extremely strong (rarely sustained)

ADX and Direction

ADX measures trend strength only, not direction. Combine with +DI/-DI (directional indicators) to determine if the trend is up or down.

Golden Cross and Death Cross

Quote

“The trend is your friend until the end when it bends.”

— Ed Seykota

• Golden Cross: SMA(50) crosses above SMA(200) — bullish long-term signal
• Death Cross: SMA(50) crosses below SMA(200) — bearish long-term signal

These are lagging indicators — by the time the cross occurs, a significant portion of the move has already happened. Best used for confirming trend changes rather than timing entries.

Relationship to Dashboard Signals

The dashboard momentum score incorporates related but distinct metrics:

• SMA-50 Ratio (price / 50-day moving average) — related to Golden/Death Cross concepts
• SMA-200 Ratio (price / 200-day moving average) — long-term trend proximity
• 52-Week High Proximity — similar to RSI in measuring relative position within a range
• Relative Strength — 52-week return vs index return, related to RSI concept but cross-sectional

Related

• daily-signal-scores — Dashboard momentum score using z-scored trend indicators
• chart-metrics — Rolling return and volatility chart visualizations
• risk-and-volatility-metrics — Beta, VIX, drawdown, and risk-adjusted ratios
• valuation-ratios — Fundamental valuation complement to technical analysis
• breadth-and-sentiment-indicators — Market breadth and sentiment metrics