Technical indicator Relative Strength Index (RSI) helps to measure the momentum of the stock. The price direction is ascertained by tracking its movement. Normally, when the prices go higher, an equal amount of rise can be seen on the indicator. When it does so, the momentum seems favorable to the stock price.
When the indicator deviates from the trend of a stock, it is said as “Divergence” on RSI reading. It is relevant to determine the divergence as it identifies the strength, momentum and even reversals occasionally. A change in a stock trend affects the sentiment and inevitably the trading symphony.
A positive/bullish divergence occurs when the stock price slips lower and RSI indicator starts to rise. When the prices rise, but indicator fails to breach the previous high reading of RSI, then it is said to be in a negative divergence. The positive divergence suggests that the stock is bottoming out, thus gaining positive signals. However, in negative divergence, the stock starts losing strength and upside gets capped around the recent high levels.
The implications of divergences are greater when the reading is outside the RSI range of 70 and 30. Similarly, any chart patterns further confirm the expected change in trend.
When the divergences are within the RSI reading, the expected move indicates a trend towards their immediate support/resistance levels.
|NEGATIVE DIVERGENCE ON RSI|
|Acc Ltd.||Indian Bank|
|Ajanta Pharmaceuticals Ltd.||I T C Ltd.|
|Ambuja Cements Ltd.||JSW Steel Ltd.|
|Aurobindo Pharma Ltd.||Karnataka Bank Ltd.|
|Arvind Ltd||Larsen & Toubro Ltd.|
|Bata India Ltd.||Multi Commodity Exchange|
|BEML Ltd.||Piramal Enterprises Ltd.|
|Bharti Airtel Ltd.||Petronet LNG Ltd.|
|Can Fin Homes Ltd.||The Ramco Cements Ltd.|
|Bharat Financial Inclusion Ltd||Raymond Ltd.|
|Chennai Petroleum Corporation Ltd.||Reliance Industries Ltd.|
|DCB Bank Ltd.||Repco Home Finance Ltd.|
|DLF Ltd.||Shree Cement Ltd.|
|Glenmark Pharmaceuticals Ltd.||SRF Ltd.|
|Godfrey Phillips India Ltd.||Sun Pharmaceutical Industries Ltd.|
|Grasim Industries Ltd.||Tata Communications ltd|
|Gujarat State Fertilizers & Chemicals Ltd.||Ujjivan Financial Services Ltd.|
|Havells India Ltd.||UltraTech Cement Ltd.|
|HDFC Bank Ltd.||UPL Ltd.|
|ICICI Bank Ltd.||Voltas Ltd.|
|India Cements Ltd.|