The Range-Expansion Index (REI) is a technical indicator derived from historical price action that offers reads of oversold and overbought conditions in a market. |
Developed by Tom Demark, the arithmetic behind the calculation attempts to overcome problems in other exponential oscillators such as the MACD by comparing current prices with those of two different periods in the past.
Interpretation
The REI oscillates between -100 and +100 and is typically broken up into three zones. A reading above +45 is usually seen as overbought; and, inversely, a move below -45 is considered an oversold environment. Anything between the +45 and -45 is considered neutral.
Usually, this indicator is used by technical analysts when the signal crosses back into neutral territory from the extreme levels in a certain amount of time. When the indicator provides an overbought signal and crosses back into the neutral range (below +45), a downturn in underlying price is expected. On the opposite side, a cross from the oversold level back into the neutral zone (above -45) suggests a swing higher will develop. Both of these setups come with time limitations. If the signal drifts in extreme levels for five bars or less before crossing back into the neutral band, it is considered a reliable indication for a change in price action. On the other hand, if the REI is overbought or oversold for six bars or more, the implications for underlying price action are considered less reliable.
