SMI Indices Technical Analysis & SMI Trading Signals

Created by William Blau.

The SMI technical indicator is an adaptation of the classic Stochastic Oscillator indicator that smoothes out the stochastic indicator oscillations.

Construction of SMI

This stock indicator is calculated by comparing the stock trading price relative to the average of an n number of periods.

Then instead of plotting these values directly, smoothing using an Exponential Moving Average is applied and then the values drawn to form the SMI.

When the closing stock trading price is greater than the average of the range, the SMI will move upward.

When the closing stock trading price is less than the average of the range, the SMI will move downwards.

This oscillator ranges between the values of +100 and -100, this indicator is also less prone to whipsaws compared to the stochastic oscillator.

Stock Technical Analysis & How to Generate Signals

Buy and Sell Signals/ Crossover Signals

The SMI can be used to generate buy and sell stock signals using the method shown below, Buy when the SMI is heading upwards and sell when its heading downwards.

Buy & Sell Signals/ Crossover Signals

Overbought/Oversold Level Crossovers

• Overbought levels above +40
• Oversold levels below -40

Buy signal is generated when this oscillator falls below oversold level and then rises above this level and starts to move upward.

Sell Signal is generated when this oscillator rises above overbought level and then falls below this level and starts to move downward.

Divergence Trading

The example explained and illustrated below shows a bearish classic divergence between the stock price & the SMI. When the SMI showed this divergence the stock price trend reversed and started to move in a downward direction.

Bearish Stock Divergence