RSI is a momentum oscillator with a 14-period default setting. Sometimes the default setting is not sensitive enough to generate both overbought and oversold readings. Often, a strong uptrend will generate several overbought readings, while a strong downtrend will generate several oversold readings. In fact, oversold readings are often none-existent in a strong uptrend (and visa versa). The chart below shows SPY with 14-day RSI overlaid the price plot. 14-day RSI has not reached oversold levels (<30) in over a year. Even during the May-June decline, the indicator did not break below 30. There were, however, several overbought readings during the strong uptrend from September to February.
The lower windows show 10-day RSI and 14-day StochRSI. Decreasing the look-back period for RSI will increase sensitivity. Notice that this version became oversold twice in May and once in late June/early July and in late August. These successive oversold readings without an overbought reading reflected a bearish bias in momentum. RSI surged from oversold on August 26th to overbought on September 20th. This signaled a momentum shift from bear to bull. This shift extended until the March decline when RSI moved below 30 for the first time since late August.
If 10-day RSI is not sensitive enough, chartists can try 5-day RSI or even 2-day RSI. Larry Connors features a 2-day RSI strategy in his book, Short-term Trading Strategies that Work. StochRSI is another alternative. This is simply the Stochastic Oscillator applied to RSI values. 14-day StochRSI would be the 14-day Stochastic Oscillator based on 14-day RSI. As you can see, there are plenty of overbought and oversold readings with this version. You can read more on RSI, the Stochastic Oscillator and StochRSI in our ChartSchool.
