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

September 2, 2013

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

XOMTWXWEEKLY

  • 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

XOMTWXDAILY

  • 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.

 

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