Short-term RSI Signal in SPY

Today's chart shows 14-period RSI for potential signals. While divergences don't produce good medium-term signals, they can be useful for short-term signals. Signals occur when RSI forms a bearish divergence and moves below its 5-day EMA (blue dotted lines). The first signal in August resulted in a breakeven trade or small loss, provided traders adjusted their stops after the decline below 100. The second signal in mid October foreshadowed a tradable decline from 110 to 104. The third signal occurred yesterday as SPY stalls around 110.

On the 30-minute chart, CCI flashed a warning with a plunge below -100. Also notice that SPY gapped up on Wednesday's open, stalled and then filled the gap with yesterday's decline. Selling pressure is creeping into the market with this failed gap and trendline break. The ETF closed around 109 and found some late support near Wednesday's low. I am raising key support to 108.5. With CCI already below -100, a move below this level would start a short-term downtrend. Turning bearish on a move below 108.5 would still be a top picking exercise because the medium-term trend is up. As such, the chances of whipsaw (a bad trade) are still above average. The key is to plan the trade before making the trade. This includes the entry point, stop-loss, profit objectives, trailing stop strategy and timeframe.