Markets have been chaotic lately, especially with tech stocks hitting turbulence and AI-driven hype shaking confidence. 

Stories like the ripple effect of China’s DeepSeek AI and the sell-off in mega-cap stocks are clear reminders of how quickly sentiment can shift. 

In a landscape like this, understanding Relative Strength Index (RSI) can give traders a crucial edge.

RSI is a momentum indicator, but it’s more than just another number. It reflects the market’s mood for a stock or sector—whether it’s been overbought and might cool off or oversold and ready for a recovery. 

Think of it as a real-time barometer for price movements.

• Above 70 suggests the market may have pushed a stock too high too fast, and a pullback could be on the horizon.

• Below 30 signals that selling pressure may have gone too far, opening the door for a rebound.

This approach resonates with what we’re seeing now. Big tech names, which drove much of last year’s rally, have recently shown signs of overextension. An RSI analysis could’ve flagged these warning signs before corrections hit, potentially helping traders lock in gains early or avoid new positions at inflated levels.

How RSI Can Be Put to Work Today

While the idea is straightforward, the insights are far from basic. Using RSI effectively means blending technical signals with an understanding of broader market dynamics. 

For instance, an RSI below 30 in industrial or energy stocks—sectors currently attracting renewed attention—could be a cue to explore opportunities. Conversely, an RSI above 70 in a tech darling might warrant a closer look to avoid holding at the top.

Pairing RSI with other tools, like trading volume, adds even more context. A sudden spike in volume alongside a shift in RSI could indicate a meaningful turnaround. Without volume, though, a low RSI might just mean the asset hasn’t found its footing yet.

A Balanced Approach

RSI isn’t a magic solution—it’s one part of a thoughtful strategy. It works best when combined with broader context, such as sector rotation trends or economic conditions. 

The goal isn’t just to chase numbers but to understand what they’re telling you about the market’s behavior.

This method stands out because it doesn’t rely on guesswork or emotion. It’s a structured way to navigate unpredictable markets, particularly in times like these when headlines dominate sentiment and sectors fall in and out of favor rapidly.

By applying RSI insights in a measured way, it’s possible to step away from reactive decisions and adopt a more strategic approach.