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US large cap pairs revisited

October 14, 2013

On 02 September, I showed some pairs from the S&P 100 Index. These used RSI divergences and the Performance Ranking (PR) divergence method. I’ll show how these have developed.

Time Warner (TWX) v S&P 100 Index (OEX)

TWXOEX

  • I showed that with another move higher, the pair would have bearish weekly RSI divergence. That has now happened
  • PR divergences can confirm RSI divergences but in this case, the PR for Time Warner (its price performance ranking amongst the S&P 100 stocks) has powered higher, there is no divergence

Daily chart

TWXOEXDAILY

  • There is daily RSI divergence but no PR divergence

Exxon (XOM) v S&P 100 Index (OEX)

XOMOEX

  • This has continued lower but there is still a slight RSI divergence against the April low
  • The PR has held above its May and August lows, so a slight divergence

Daily chart

XOMOEXDAILY

  • There was an RSI divergence at the 01 October low
  • The short term downtrend has been broken
  • My ideal daily RSI criteria are a new low with RSI above 30, which has not been met yet

Exxon (XOM) v Time Warner (TWX)

XOMTWX

  • The weekly MACD and RSI divergences remain in place
  • A weekly RSI buy signal would be a move above the intervening RSI high (blue arrow) from June
  • That would require a large move and a wide stop loss. Instead, I’ll show the daily chart for a trade set up with a tighter stop loss

Daily chart

XOMTWXDAILY

  • The original set up of a break above the 28 August high failed to materialise
  • There is another daily RSI divergence now, albeit not the absolute ideal scenario of a new low and RSI above 30
  • A move above the intervening highs on the ratio and RSI from 09 October (green lines and arrows) is a buy signal
  • As it stands, the stop loss of a new low would be 3.0% lower
  • If the ratio continues lower, just re-evaluate, no harm done

The trade

This pair and its components against the S&P 100 Index do not have every aspect lined up ideally (PR divergence and daily RSI divergence above 30). They do however have weekly and daily RSI divergences and so this is worth a shot with a tight stop loss.

A long position in Exxon (XOM) v Time Warner (TWX) will be opened on a daily close for pair and daily RSI above the 09 October highs. The stop loss will be a new low.

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