RSI(2)

On Wednesday, I wrote:

“SPY’s RSI(2) on the daily chart closed at 15.37 on Tuesday. The last time it dropped that low was on February 4th, and a swing low formed the next day. The bears may not be done mauling the market yet, but the odds have begun to shift back toward the bulls.”

And that’s pretty much what happened. The bears gave the market a vicious mauling on Friday morning, but the over-sold market bounced back. Take a look at this daily SPX chart which has an RSI(2) plot at the bottom (click to enlarge):

The two purple arrows point to the RSI(2)’s plunges in February, and the two blue arrows point to the dramatic reversals that occurred shortly afterward. Those two hammer candles are almost identical. Not bad, huh?

No indicator is a sure thing, but when the RSI(2) gets streched, it pays to be alert for a reversal. Especially in a range-bound market where indicators like this one shine.

Hat-tip to George for telling us about the RSI(2) way back when.

93 Responses to “RSI(2)”

  1. after says:

    yawn, -g-
    Futures Prices
    Market Last Change %
    Crude Oil 78.38 +0.21 +0.27
    Natural Gas 4.762 -0.005 -0.10
    Corn 383.25 -3.00 -0.78
    Soybeans 950.0 -16.5 -1.74
    30yr Bond 116.84375 -0.09375 -0.08
    10yr Note 117.140625 +0.453125 +0.39
    NY Gold 1109.0 +0.5 +0.05
    NY Silver 16.125 -0.007 -0.04
    Emini S&P 1104.00 +1.75 +0.16
    Emini Nasdaq 1814.50 +1.00 +0.06
    Emini Dow 10325 +9 +0.09

  2. George says:

    After, Yawn(?). This is what’s happening!

    Yesterday, you faked me out. I thought POO was in our immediate future. Right now, SPY’s priced in in the center between MOO and DOO.

    That’s okay, if the LAST SPACE SHUTTLE’S takeoff can be delayed until April 5, so can MOO.

  3. George says:

    STS-133 Mission Information:

    http://tinyurl.com/ybzeuob

  4. George says:

    SPY closed its own daily gap down yesterday. SPY hit its daily 36MA and has stalled there for 5 days after slightly going over it.

    Still, there is nothing bearish on the 15min as of right now.

    BTW, SSO has a daily gap created on the 16th while SPY does not. Will be interesting to see which will be honored – or not.

  5. George says:

    SPY nearing tops on the 15min.

  6. George says:

    IF SPY continues down on its 15min MACD cycle, this will be the 3rd 15min MACD cycle it has failed to make new highs. It can turn up from here as it’s testing its 5min 36MA, so I’ll be looking for divergence on the MACD.

  7. 2thfixr says:

    George, I see the 15-min MACD peak being made right now as HIGHER than Wed’s peak, even though 1105 is > than 1103…divergent at this point…what do you think?

  8. George says:

    2thfixr,

    Yes it is. Price keeps hitting those previous (yesterday’s) highs and backs off.

  9. 2thfixr says:

    I see upside coming, so that is just coiling the spring….

  10. George says:

    The 60min MACD has a negative divergence, but it hasn’t played out yet.

  11. George says:

    OK, now it is taking out the highs. NICE bounce off the 5min 36MA.

  12. George says:

    Waiting for SRS to set up. It’s been beaten down quite a bit lately.

  13. 2thfixr says:

    looking t o hug an inverse, huh?

  14. 2thfixr says:

    good call…came off the tops.

  15. George says:

    Yep, Hug The Inverse shortly. (We can only hope.) :)

  16. George says:

    SPY will drop down to its 5min 36MA and test it again. That should be telling.

  17. 2thfixr says:

    nah….I’m in the bull camp now, but haven’t covered my shorts yet.

  18. 2thfixr says:

    cleaning out the stops on SSO below $37.48….lol

  19. George says:

    May be a good idea, especially if SPY wants to make another run at the top. Nothing broken yet on the 15min.

  20. George says:

    Looks like SPY 5min is weakening.

  21. George says:

    Now the 15min stochastic is under 80.

  22. 2thfixr says:

    found support at 1102.25 (62% Fib from 1112 to 1086)…will it hold?

  23. 2thfixr says:

    double bottom?

  24. George says:

    SPY testing its 30min 9MA while that timeframes’s stochastic and MACD are ok… not great, but okay.

  25. 2thfixr says:

    9 ma rejected price once….yuck

  26. George says:

    2thfixr,

    I have a story to tell about Fibs. I’ll do that after market closes. The hint is… random horizontal lines work almost as well. I’m serious.

  27. George says:

    SRS trying to set up. Almost 3 crosses. I’m in anyway with a small position. I’ll get beaucoup if the 15min clears.

  28. 2thfixr says:

    the MM in SSO is playing the usual % games….down .02 on SPX and down .15%…gotta be a MM in my next life.

  29. 2thfixr says:

    $$$$ getting stronger…market lower….

  30. 2thfixr says:

    and then it pops above the 9 ma….go figure….

  31. George says:

    I see that double bottom on SDS’ 15min now. Missed that. Tks.

  32. 2thfixr says:

    small double bottom in SSO in the minute scale too…, but moving sideways off the last bottom….not looking good….

  33. George says:

    SPY will try to hold support on the 30min 9MA here. Cross on the 5min 9/36 to the downside. While MACD trendlines are approaching the zero line which could be a bounce.

  34. 2thfixr says:

    I have that sneaking suspcion I am on the wrong side of this one…that 5-min MACD, below price on 15-min 9MA….we’ll see….

  35. 2thfixr says:

    now $$$ falling again,,,market up.

  36. George says:

    It really does seem too early in the day for the market to be making a reversal. Maybe backing off, consolidating to make another run to the top.

  37. George says:

    My 5min Majek indicator sez the 5min is in a move down on SPY. It’s wrong sometimes though, depending upon volatility.

  38. 2thfixr says:

    if Spx breaks 1102.25, look out below…..

  39. George says:

    You nailed that, 2thfixr.

    BBT is bucking the trend along with ICE. Why they try confuse me?

  40. 2thfixr says:

    #$@#$ rules….had to blow out the SSO I bought at 50 cents for 33 cents…. but 1102.25 got clipped, and it hasn’t recovered it yet….so, out she goes. Look for a new entry on something else. That will guarantee a new high today. :-)

  41. Yerk says:

    bias slightly up. 1112, then 1125 resistance. Floor at 1085 held yesterday.

  42. 2thfixr says:

    agree Yerk

  43. 2thfixr says:

    now the 15-min 9 MA is getting a test in SSO/SDS. Which will win?

    Back above 1102.25 by the way…

  44. George says:

    The 5min MACD is trying to bounced off its 5min.

  45. George says:

    URE did the same thing. Majek indicator still indicating SPY 5min in downtrend.

  46. 2thfixr says:

    out of SDS, small SSO position (longer term) and we are going to test the top again….

  47. 2thfixr says:

    have a big, fun weekend everyone…thanks for the fun George.

  48. phil says:

    BOUGHT TBT @ 46.65

  49. George says:

    You too, 2thfixr. Sorry you can’t stay around for the inverse fun.

  50. Stringm says:

    George

    Unless something changes real soon, we did nothing to resolve that pivotal point business we discussed last week. The daily is still glued to the 36MA and it is still going down, but the 21MA is now going up. Something has to give sooner or later. I guess they could just let it leak down, but I would think the go up would have to be fast to atract buyers.

    String

  51. George says:

    Bottoms/Tops lower time frames. Not the absolute lows intraday, but getting there.

  52. George says:

    If we had one more minute, we’d see red streaks. :)

  53. George says:

    Stringm,

    Yes, I think when price gets between those close support and resistance areas it creates volatility.

    I agree with 2thfixr we may see new highs… up to at least MOO.

  54. Stringm says:

    Phil

    I know you are selling bonds and not buying, but when you do buy do you give any consideration to when the interest is to be paid. Do you go for ones with alot of accrued interest?, in hopes you might own it at payout, or do you even taken it into consideration at all?

    String

  55. Stringm says:

    George

    I know if it will ever bust that 36MA on the daily, it should be clear sailing for a little while anyway. You can bet when you see it I will have some SSO.

    String

  56. George says:

    Stringm,

    I think it’s busting it now, after-hours.

  57. Stringm says:

    George

    That’s about par for the course since I don’t have any. It will probably open a buck higher on Monday, and then I will be afraid to buy. I need to think more in advance like Dr. Phil. I am too reactionary.

    String

  58. phil says:

    STRING……..there is no free lunch……lol………if the bond has a lot of accrued interest and you buy just before it pays out .. you have to pay all that interest when you buy the bond …then you just get it back on the pay date…..nice try though…………….

  59. 2thfixr says:

    George, had some other stuff to do, and I wasn’t doing anything right, so it was time to step away from the computer and stop beating myself up. :-)

    I had an order in for SDS at $34.80 about 5 minutes from the close, but it didn’t get filled…then it took off for $35…darn. But, if after hours the SSO got bid up, probably a good thing my order was a touch late getting in.

    I think we dip a touch to 1096ish and then up to fill at least that 1115 gap. But, it could just jump/gap up now as the a-b-c of a corrective wave has been fulfilled when it touched 1086. If the dollar corrects even more from the 81 level, the market is gonna make new highs. After all, the death cross has to trap some weak retail investors who jumped into the dollar trade based upon that indicator, right? Like we talked about yesterday.

    Funny, I remember CNBS reporting a Jan 2011, one hundred thousand contract call option on UUP at $24 for a buck. I thought to myself, the dollar is never gonna let UUP touch $25 with that much scratch on the line against a market maker. It traded into the low $24′s, but boy has it backed off from there. Anyone else remember hearing that? Here’s the link: http://www.distressedvolatility.com/2009/12/activity-in-uup-options-and-etf-100k.html

    In the fall, I thought that when the dollar started to rise, the markets would correct. Phil pointed out that they wouldn’t and he was right. The market IGNORES the dollar going up (trades sideways) but JUMPS up when the dollar drops.

  60. Stringm says:

    Phil

    I wasn’t looking for a free lunch, however if I can find one I dang sure take it! LOL! I figured it was like a stock that just went ex-dividend. However if everyone is super into bonds right at the time of payout, it looks like there might be some premium still paid on the bonds. I was just curious how you selected which bonds you bought. There seems to be an amble supply to choose from when I pull up the 10 year list. TD breaks it down to 7-10 year and 10-20. I can find 10 yr in both categories.

    String

  61. George says:

    I’m mobile so if I goof you know why.

    2thfixr I see SSO has made a good move to the upside. Those gaps on the 60 min will most likely be
    filled… The MOO and POO.

  62. K says:

    1 bank failed? aww man i’m going to be bored!

  63. George says:

    According to SD, SPY is at $111.13 AH. It closed at $110.76.

  64. Julie says:

    George,
    Give up the market. Become a GM consultant.
    Work 20 hours/month. Make $3000.00/hour.
    Make GM number one again.

  65. phil says:

    STRING….i pull up the whole list of treasuries from about 5yrs to 30…if i am planning to keep it i try to find the area of highest yield for the shortest maturity….its called the KNEE of the yield curve..if trading i decide how risky i think the situation is… ie 10yr less risky … 30 more…..also some bonds are discount and some premium…ie over or under par….you can buy more of the discount bonds…ie 3.5% treasury dated 2/15 /39 is priced @ 83…..so $100,000 FACE would cost you $83,000…if bonds go up a point to 84 you make $1000

  66. George says:

    Julie,

    I’d be taking a pay cut! :)

    How in the world does GM justify that amount of money per hour? I’d work 4 hours a month and be happy. :)

  67. Julie says:

    George,
    Don’t take a pay cut.
    I couldn’t believe the deal GM gave their
    former CEO….

  68. Stringm says:

    Phil

    When you say discount are you referring to strips?

    String

  69. paula says:

    K,
    Fannie needs $50 Billion. Can you loan it
    to them???

  70. K says:

    Paula,
    I’d rather loan to these people in washington so I could buy them out.
    —-

    in other news… (March starts tomorrow)

    1.2 million jobless workers will become ineligible for federal unemployment benefits in March unless Congress extends the unemployment safety net programs from the American Recovery and Reinvestment Act (ARRA). By June, this number will swell to nearly 5 million unemployed workers nationally who will be left without any jobless benefits.

    http://www.calculatedriskblog.com/2010/02/12-million-to-lose-unemployment.html

  71. George says:

    I’m on the road with the iphone. Noted that there is a full moon. Not only that but another Blue Moon.

  72. George says:

    Julie,

    I don’t know what the former GM CEO got but I can imagine it was purty, just like the former pres of United Way.

  73. after says:

    Futures Prices, seem perky thus far !
    (Canada wins gold !!!! Smile and say Sidney Crosby !!!!)
    Market Last Change %
    Crude Oil 80.05 +0.39 +0.49
    Natural Gas 4.790 -0.023 -0.48
    Corn 389.00 +5.75 +1.48
    Soybeans 961 +11 +1.14
    30yr Bond 117.68750 +0.75000 +0.64
    10yr Note 117.484375 +0.343750 +0.29
    NY Gold 1118.0 -0.9 -0.08
    NY Silver 16.630 +0.109 +0.66
    Emini S&P 1109.00 +5.50 +0.50
    Emini Nasdaq 1828.75 +10.25 +0.56
    Emini Dow 10360 +49 +0.47

  74. Julie says:

    George,
    GM gave its former CEO the consultant deal.
    20 hours/month at $3000.00 per hour.

  75. Julie says:

    K,
    How is your fund doing???

  76. K says:

    Julie,
    From Feb 4th to now.. is up 1.95% while S&P is up 0.66%

    The trade executor was too caught up with other work this Thursday so we didn’t get some of our new positions executed.

    I came up with a scoring system for out picks which includes fundamental and technical scores.

    a score higher than 70% qualifies it to the next round where people vote on it.

    its not perfect but people love the fact that we have something to rely on instead of last semester when the groups were caught up on analyst predictions.

    like Buffet said in his recent berkshire hathaway letter to shareholders.

    “We make no attempt to woo Wall Street. Investors who buy and sell based upon media or analyst commentary are not for us. ”

    I am enjoying my job and I hope to have time to continue it next semester and the semester after (can you say the K dynasty)

    Next goal is to market our nonprofit fund to big guys and have them donate money that is then matched $1:$1 by our advisory board.

    Once our current $22k fund reaches $200k the surplus will go to scholarships for students with great need.

    It is a long way from that but always need a far away goal to reach.

  77. George says:

    Julie,

    Oh, I thought you meant retirement. That’s a sweet consulting deal – the model set by Washington (trust me, it goes on more than most suspect).

  78. George says:

    K,

    Your fund’s management looks solid. That’s great. I know what you’re going to grow up to be… :)

  79. George says:

    After,

    Those numbers look like rocket propellent – MOO, here we come!

  80. George says:

    I just installed another PC for a happy camper. Truly, “one man’s garbage is another man’s gold”, as the saying goes. Maybe they will be the next Bill Gates.

    On to the next.

  81. George says:

    Julie,

    I just thought of a funny. The reason they gave him only 20 hours a month is so they won’t have to give him benefits. :)

    …just sayin’… :0

  82. K says:

    what am i going to grow up to be? :D

  83. 2thfixr says:

    George, I think we’re gonna close that 1115-1116 gap in the chart of SPX very soon. I see some red after that…

  84. George says:

    K,

    A MONEY MANAGER!

  85. George says:

    2thfixr,

    Agree about the gap. I’m undecided about any big read streaks right now. If SPY can’t recover its weekly, then that will be certainly be longer red streaks than usual.

  86. K says:

    Paula,
    I think Obama needs help with his health!

    http://news.ino.com/headlines/?newsid=22820100133

    George,
    that’s only 1/4th of what I want to grow up to be :D

    I want more than 3 points of failure so live comfortably.

    otherwise a golden parachute will work.

  87. George says:

    K,

    I think you will get whatever you want; you’re that kind of person.

  88. George says:

    Obama never smokes in public. He must make up for it at night. I can hear his opponents say “it’s people like him that make health care so high”. :)

  89. George says:

    Okay, so I can’t type on the iPhone-what else is new? I gotta get a syntax checker for this thing.

  90. K says:

    you cant type?
    I’m either sleepy or something because i dont see your mistake LOL

  91. George says:

    I thought I made a mastake but I guess not.