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NISM Certifications · NISM-Series-XV: Research Analyst · Qualities of a Good Research Report

A research analyst's report on a listed company uses an 'RSI above 70' signal to say the stock is overbought. Which statement about presenting this in a good report is correct?

A good report explains the indicator, its period and its limitations, noting that overbought readings above 70 can persist in strong trends, so the signal should be read with other evidence. Presenting it as a guaranteed reversal is misleading, and RSI is applicable to stocks.

  1. AThe RSI signal should be stated as a guaranteed reversal
  2. BThe report should explain the indicator, its period and that overbought readings can persist in strong trends, so it should be read with other evidenceCorrect
  3. CThe RSI should be hidden to avoid confusing readers
  4. DRSI is only valid for commodities, not stocks

Explanation

A good report explains the technical tool used, its parameters and limitations. Overbought readings can persist during strong uptrends, so confirmation from other evidence is advisable. Guaranteeing reversals is misleading, and RSI applies to stocks too.

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