Pairs trade: Exxon Mobil (XOM) v Time Warner (TWX)

We can always examine pairs from the Price Ranking (PR) candidates to see whether they match the RSI divergence entry criteria. Here is one that does.

XOM v TWX weekly chart

• The previous divergence set up marked the February 2009 peak
• There is bullish divergence on the MACD and the 14 week RSI
• An RSI buy signal is a move above the intervening RSI high of 39.6 from 19 July (blue arrow)
• The RSI divergence entry criteria state preference for a weekly RSI close above the intervening high, which could delay the entry but makes it a safer trade

XOM v TWX daily chart

• There is divergence against the April trough and within this trough
• The low of 22 August came with RSI above 30, meeting the daily RSI entry criteria
• A move above the 28 August high (blue arrow) will be a high since 01 August

A long position will be opened in this pair on two conditions:

• A close for the 14 week RSI above the intervening high
• A move above the 28 August high

The stop loss will be below the 22 August low, 3.8% below the 28 August high.