The RSI(14) of the S&P 500 has stayed within a tight range of less than 5 points in the last 10 days. This is not very common and since 1950 there have been only 20 distinct occurrences of this pattern, including two in 2012, one in 2009 and one in 2005. The last two occurrences in 2012 signaled a short-term rally.
On the daily S&P 500 chart above the most recent three occurrences of the pattern of the RSI(14) that has it staying in a tight range of less than 5 points for 10 days are indicated by green arrows. It is interesting that the first occurrence in 2012 was during the same time as the latest occurrence in 2013, i.e. in the beginning of the year and during a period that generated the bulk of the index profits. Both 2012 occurrences preceded an upward move in the index which was later followed by a correction.
The trade statistics on the above table show the distinct occurrences of this RSI(14) pattern since 1950 and the results for 2% profit-target and stop-loss. The win rate is 50% and it does not provide any clues about a potential directional bias of this pattern.
I would not try to conclude anything from this pattern other than the fact that it shows hesitation and fear from the part of institutionals. I doubt that the performance of last year during January will be repeated this year and I think many are also skeptical that this rally may be a bull trap.
Disclosure: no relevant position at the time of this post and no plans to initiate any positions within the next 72 hours..
Charting program: Amibroker (Charts created with AmiBroker – advanced charting and technical analysis software. http://www.amibroker.com/”)