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Tickers in this Article: EP, ECA, TLM, SOHU, FFIV
One of the most popular tools in technical analysis that is used to predict a shift in a stock's momentum is known as the relative strength index (RSI). This indicator's primary purpose is to determine when a given rally is becoming overbought or oversold. Generally speaking, readings below 30 suggest that the stock has been pushed to an unjustifiably low level, causing most bullish traders to start looking for a strategic entry position. On the other hand, readings above 70 are often used to suggest that the rally is getting exhausted and that the bears may be getting ready to send the stock lower. In most cases, traders will want to confirm the sell signal by using other technical indicators to increase the probability that a move lower will actually occur. Let's take a look at five stocks that have recently triggered a bearish RSI signal.

El Paso Corp. (NYSE:EP) - On May 7, we mentioned that the bulls were able to send the price of El Paso shares above an influential level of resistance and that the bulls would likely remain in control of the short-term momentum. As you can see from the chart below, the stock made a move higher as we were anticipating, but it has since jumped onto our radar again for completely different reasons. You'll notice that the RSI has recently crossed below 70, which suggests the momentum may be getting exhausted. We'll keep a short-term bearish outlook on the stock until the price is able to move above the recent swing high of $20.77. We'll also watch for the the bears to set their short-term targets near the previous resistance (now support) of $18.25. It is also worth mentioning that the bullish rally in petroleum products has also caused the charts of other oil & gas stocks to look eerily similar than that of EP. Other petroleum companies that have recently triggered bearish RSI crosses include Encana Corp. (NYSE:ECA) and Talisman Energy Inc. (NYSE:TLM). These bearish crossovers may be a warning sign that the momentum is getting ready to slow down.


Sohu.com Inc. (Nasdaq:SOHU) - Looking at the daily chart of Sohu.com, we noticed that the recent upward momentum has weakened, which has sent the RSI below 70 as a result. The bearish RSI signal may be used by the bulls to suggest that the trend is weakening and that it may be time to take profit off the table. We've also noticed that the price has closed below its 15-day moving average (blue line), which will likely add to the selling pressure. We expect many traders to set their target prices near the long-term support of the 200-day moving average (pink line). Longer-term bears will watch to see if it will retest the long-term support like it has in the past (shown by the black arrows).


F5 Networks Inc. (Nasdaq:FFIV) - F5 is another company that has triggered a bearish RSI signal. As you can see from the chart below, the recent rally lost momentum as the price neared the resistance of its 200-day moving average. The downward sloping 200 DMA suggests that the bears are in control of the momentum and traders will likely used the bearish RSI (cross below 70) to suggest that the long-term trend will remain downward. We'll watch to see if the bears will try to send the price toward the long-term support near $18.


For educational articles on the RSI:
Ride The RSI Rollercoaster
Exploring Oscillators and Indicators: RSI

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