Bearish RSI divergence is a useful early‑warning sign that a stock or index could be nearing a sizable top. When the price makes a higher high while the Relative Strength Index forms a lower high, momentum is starting to wane, but that pattern alone isn’t enough to act on.
To turn the signal into a tradeable cue, you need confirmation. Most traders wait for the price to break a key support level, slip below a moving average, or see the RSI drop through a critical threshold (often the 30‑level). Those follow‑through moves demonstrate that the weakening momentum has turned into actual price pressure.
Consider Dollar General (DG). The stock posted a fresh high in early February, yet the RSI peaked a few weeks earlier and then fell, creating a classic bearish divergence. The next day the price slipped beneath its 50‑day moving average, confirming the signal and leading to a noticeable pullback.
Alphabet (GOOGL) offered another illustration. After a prolonged rally, the RSI began descending while the share price still climbed. Once the price broke a short‑term support trendline, the decline accelerated, validating the original divergence.
AT&T (T) showed the same pattern: a higher high in price accompanied by a lower high on the RSI, followed by a breach of a nearby pivot point that triggered a steeper fall.
The S&P 500 index also experiences these setups. A higher high in the index paired with a lower high on the RSI can precede a broad market correction, especially if the index subsequently pierces a major moving average such as the 200‑day.
By pairing divergence with clear confirmation, traders can avoid premature entries that often happen when momentum first starts to fade. Setting alerts for the break of support levels or moving‑average crosses, and applying disciplined risk‑management rules, helps keep the strategy both systematic and safe.
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