StockFetcher Forums · General Discussion · RSI2 divergences on major indices and etfs<< >>Post Follow-up
265 posts
msg #83203
Ignore trendscanner
11/18/2009 7:10:59 AM

I see daily rsi(2) divergences developing on the major indices and their underlying etfs, spy, dia, qqqq. Indices are making new highs but rsi(2) is not. DIA had a rsi(2) divergence on the 60 min chart as well. The opposite is happening on inverse etfs, they’re making new lows but rsi(2)not.

Is anyone else besides me seeing/trading these divergences? They’ve been pretty good signals for near term reversals in the past.

here's a link to a DIA chart showing the divergence and a plot of SDS with the opposite divergence below.

3,828 posts
msg #83207
Ignore Kevin_in_GA
11/18/2009 9:53:11 AM

You are not the only one noticing this:

Negative Divergences on the RSI

683 posts
msg #83224
Ignore duke56468
11/18/2009 1:20:15 PM

If it holds true to pattern you should be able to go long until around 2 Dec, at least thats been the pattern for the last 3 months

265 posts
msg #83234
Ignore trendscanner
11/18/2009 7:53:07 PM

Kevin, thanks for the link. I suspect a lot of traders have noticed these divergences besides me. I agree with the author in the link you posted that these divergences don't necessarily mean the market is headed off a cliff soon, although based on past divergences, a short term pull back seems possible in the near term.

Having read through many threads here and tried a variety of approaches, I've decided to try to learn at least one or two of M4M's trading strategies. OK, I'll pause here until everyone's done laughing......I expect the SF landscape is littered with the bankrupt carcasses of those who have tried this previously and failed. So I'm only going to use money I can afford to lose. I've spent quite a bit of time reading through his threads here and elsewhere and think I have a decent understanding of at least some of his methods.

One method looks for rsi(2) divergence on a daily chart, either a new high/top or bottom, on one or more of the major indices, with a similar divergence on an hourly chart being a good confirmation. Once the divergence is identified, use near the money or out of the money options to provide leverage in the trade.

Seeing the divergence Tuesday afternoon on the daily and hourly charts, I bought DIA $105 Nov puts just before the Tuesday close. Holy Cats! What a volatility ride today. By 10AM, DIA was down 0.5% and my trade was up 40%! By 10:30, most of that gain had evaporated but by early afternoon I was up almost 40% again. I was hoping DIA would break below 104, which might have put me up nearly 100% but it bounced off resistance twice near 104 and I ended up the day actually down a few percent. Thought about selling the puts in the afternoon for a slight gain but after looking at the daily and hourly charts again, I decided that I still liked the chances of DIA dropping lower during at least part of the day tomorrow, so I stayed in the trade.

If anyone else out there is trading any of M4M's approaches and has any suggestions for me or wants to know how I'm approaching this, feel free to holler at me at

59 posts
msg #83241
Ignore medowz
11/18/2009 10:29:58 PM

FWIW: Kevins Blog has noted the same sorts of things in regards to the etfs.

469 posts
msg #83242
Ignore straken
11/18/2009 11:48:08 PM

No seriously substitute the williams(2) for the RSI(2) and you will really be shaking your head. M4M will be too.
All the indices MA(20) is touching or below the MA(50) except for the large caps. This has usually signaled a large correction in the past. I think its a safe bet to sit on the sidelines for a few days to see where we are going. I have PUTS in sears for tomorrows release then I will be going to cash. Flat trading doesn't bode well for any indicator even the RSI. Just as a flat price will cause the bollinger median to drift toward the price day after day without the price moving much at all, the RSI will drift away as well. I am no technical guru by any means JMHO....hope it helps.

265 posts
msg #83260
Ignore trendscanner
11/19/2009 6:33:57 PM

Straken, thanks for the suggestion to look at the Williams %r (2). I've looked at it previously and it looks like it behaves very similar to the rsi(2), but maybe even responds a little quicker, I'm not sure that quicker is necessarily better though. I'm trying to figure out what works most reliably. Have you had success using divergences on the will %r (2) to trade?

Sears took a real pounding today, I expect you did well on your puts.

StockFetcher Forums · General Discussion · RSI2 divergences on major indices and etfs<< >>Post Follow-up

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