[[Start here]] → [[Journals]] → 2023-10-10 --- The FTSE AIM All Share is in an extreme sell off. It’s in an almost unbroken 25 month downtrend and appears to be entering a capitulation phase. Is it now the time to buy AIM Shares? Well there are really two approaches to timing the AIM index. The first is to follow the trend using a simple **moving-average crossover**. You wait until the index moves above its medium term moving average, and then buy. Similarly, you sell and move to cash when it moves below. The 120 or 200 day moving average (MA) have been fruitful for timing AIM for the last few decades. As the index is still well below its MA, there’s no trigger yet. While the MA trend following approach is the safest approach, it does mean you enter the market slowly and miss the initial gains from any lows. ![[2023-10-10-aim-crossover.png]] The second approach is to try to identify the swing lows and highs in the market, and trade counter to the trend. This is more of a [[Mean Reversion]] trade with higher risk. Simple indicators can work quite well, but they are more prone to failure than the longer term trend following signals. One indicator I like to look at for AIM is the **Monthly RSI**. This is a standardised overbought/oversold indicator that scales between zero and 100. The general rule of thumb for the RSI is that it’s overbought when above 70 and oversold when below 30. Currently the FTSE AIM All Share’s Monthly RSI reading is 29. It has only been this low twice in the last twenty years. The first was between August 2008 and April 2009 during the global financial crisis. The second was in March 2020 during the pandemic crash. You can see the RSI added at the bottom of the [AIM index chart](https://app.stockopedia.com/index-prices/ftse-aim-all-share-index-FTSE:AXX/chart?source=StockReport) below. ![[2023-10-10-ftse-aim-rsi-reading.png]] In both cases, at the other side of the recovery, strong gains were made. It is worth noting though, that in the GFC, the index continued to plummet for some time after the initial RSI reading went sub 30. It did though trigger earlier in the decline, but the speed of the sell off was more extreme. So should you buy now? Well, what we do know is that the index is highly oversold. There are clearly funds dumping stock, and the selling wave is not yet through. There has to be a capitulation at some point and we may be seeing it now. Lots of bad news, war in Israel, rates higher for longer, economic weakness, we all know the drill. I would never time my entries on one indicator, and I’m not a tactical swing trader. Most swing traders would look for confirmation that the extreme is in, i.e. entering as soon as buying strength returns. When markets get this oversold, they often act like a rubber band and snap back. Quick gains can be made. One portfolio I’ve been investing from scratch is using the first, trend-following approach to gradually deploy capital. The first trigger to invest was in January when the AIM index moved above its 120 day moving average. The plan was to invest a third of the capital on that trigger, then wait for confirmation of a continued uptrend. The six shares I bought in January have returned 25% on a price appreciation basis while yielding 3.5%. Two of the six were AIM shares which have driven the lion’s share of the gains - Yu Group and Kitwave. Maybe a lucky set, but bought due to their strong value and momentum characteristics at the time. The trend soon turned down again, so I’ve sat patiently in cash for the rest of my funds all year. Those six stocks are still held. At some point, these indices will bottom. Let’s see if the RSI reading marks the spot. For my portfolio described, I’ll be waiting for a confirmation of a new uptrend, but brave investors may be willing to choose the counter-punch approach and seek oversold opportunities now.