I have been screening nightly for a good RSI(2) setup. I have yet to find anything outstanding. However, ECA, while it is less than perfect, certainly makes an interesting chart for analysis.
The stock made a well-formed cup, and then made its first handle in September and October.Â ECA then broke above its pivot, formed another short handle, and then screamed upwards.
However, we are less concerned with the breakout, and more concerned with how oversold ECA is. The RSI(2) is 1. Also observe the Stochastics. Looking at today’s candle, we can see that ECA tried to work off its oversold condition but met with previousÂ resistance and the 50 day moving average. Normally a failure at the 50 day would open up the possibility for short selling. In this instance, it is hard to imagine this will continue downward without some sort of bounce or consolidation to work off the oversold status.
While this is not a perfect setup for the RSI(2), it does give one the idea of what to look for. We want a stock that has made a significant move up, and has then pulled back to either a trendline or moving average support, with RSI(2) < 2.
You can read the post that explains more about the RSI(2) here: Improving Your Timing with the RSI(2).