On 4 April 2025, the Relative Strength Index (RSI) of SPY (the S&P 500 exchange-traded fund, or ETF) fell below 30. Three months later, SPY was 23.1% higher, with dividends counted.
The RSI is a score from 0 to 100 that compares a price's recent gains with its recent losses. J. Welles Wilder, who created it, treated readings above 70 as overbought and below 30 as oversold. This guide works the RSI out by hand on SPY. It then tests the textbook rule built on those lines: sell when the RSI rises above 70, buy when it drops below 30.
What is the RSI indicator? The Relative Strength Index (RSI) is a score from 0 to 100. It compares the average size of a price's daily gains with that of its daily losses, with the last 14 trading days carrying the most weight. J. Welles Wilder introduced it in 1978.
A reading above 70 is called overbought and below 30 oversold. On 6 October 2026, the RSI of SPY, the S&P 500 ETF, was 62.7.
Since 1993, SPY was higher one month after 68.8% of its RSI crossings above 70. Across all days, it was higher one month later 65.7% of the time. So on SPY, a crossing above 70 did not mark a fall.
After SPY's RSI crossed below 30, its median 3-month return was 8.0%, against 3.7% across all days. There were only 62 such crossings.
What the RSI indicator measures
Wilder introduced the RSI in his 1978 book, New Concepts in Technical Trading Systems. He based it on 14 periods, which on a daily chart means the last 14 trading days.
A reading of 50 means recent gains and losses were the same size. A reading near 100 means almost every recent move was up, while a reading near 0 means almost every move was down.
Overbought, above 70, means a rise so fast that a pause or fall may follow. Oversold, below 30, is the reverse.
The name can mislead. Relative strength can also mean how one stock did against the market. Wilder's RSI compares a price only with its own past.
How RSI is calculated, step by step on SPY
The RSI starts from the last 14 daily price changes. Chart 1 shows them for SPY, from 17 September to 6 October 2026.
Source: YX Insights
Chart 1 shows SPY rising on eight days, for gains of $41.95 a share in all. It fell on six days, losing $15.04. The closes are adjusted for SPY's $1.89 dividend on 18 September, so the drop from that payout does not count as a loss.
Four steps turn those totals into the RSI:
Average gain. Divide the total gain by all 14 days, down days included: $41.95 ÷ 14 = $2.996.
Average loss. Do the same with the losses, counted as positive numbers: $15.04 ÷ 14 = $1.074.
Relative strength (RS). The average gain divided by the average loss: $2.996 ÷ $1.074 = 2.79.
RSI. 100 − 100 ÷ (1 + RS) = 100 − 100 ÷ 3.79 = 73.6.
This 73.6 is the simple 14-day version. The standard RSI, set out in Wilder's book and shown by charting tools such as StockCharts, uses his smoothing. For SPY on 6 October 2026, the standard RSI was 62.7.
Wilder used the simple averages only once, to start the series. After that, each day's average gain is 13/14 of the previous average plus 1/14 of the new day's gain. Average losses work the same way. So older days fade out slowly.
The smoothed averages still carry some weight from days before 17 September, outside Chart 1. SPY fell 2.5% from 3 to 16 September, which lifts the smoothed average loss to $1.47.
This guide uses the standard, smoothed RSI from here on.
SPY's RSI from January 2025 to October 2026
Source: YX Insights
Chart 2 puts SPY's closing price above its RSI. Over these 441 trading days, the RSI was above 70 on 40 days and below 30 on seven.
The RSI's low came on 8 April 2025, at 21.6. SPY had crossed below 30 on 4 April, after the US announced tariffs of at least 10% on imports on 2 April. Three months after the 4 April crossing, it was 23.1% higher.
The RSI's high came on 14 May 2026, at 78.7. One month later, SPY was 0.9% higher. On 6 October 2026, the RSI was 62.7, in neither zone.
Do the 70 and 30 lines work? Testing RSI on 15 funds
The test covers 15 US-listed funds: the S&P 500, the Nasdaq-100, small companies, developed markets, nine sectors, gold and long Treasuries. Each fund's data runs from its own start, between 1993 and 2004, to 6 October 2026.
Funds avoid survivorship bias, the error of testing only names that did well, because none of the 15 was picked for its later returns.
A signal counts once, on the day the RSI first crosses the line. The return runs from that day's close to the close 21 trading days later (about 1 month) and 63 trading days later (about 3 months), with dividends counted. So each signal uses only prices known on its day. Costs and tax are ignored.
Each result is set against the base rate: the return after all days, for the same funds and years.
Source: YX Insights
Chart 3 shows the median return, the middle result, over the next month and the next 3 months.
For SPY, a crossing above 70 came before a median month of 1.4%, the same as across all days. Over 3 months, it was 3.4%, against 3.7%. SPY was higher a month later after 68.8% of those crossings, against 65.7% across all days.
Across the 15 funds pooled, a crossing above 70 came before slightly weaker returns. The median was 0.8% over a month, against 1.2%. Over 3 months, it was 2.6%, against 3.0%. Prices were still higher a month later in 59.6% of cases, against 60.4% across all days.
Crossings below 30 came before stronger returns. For SPY, the median was 3.4% over a month and 8.0% over 3 months, against 1.4% and 3.7% across all days. Across the 15 funds, it was 1.9% and 5.1%, against 1.2% and 3.0%.
The table adds the means and the share of periods that ended higher.
Fund | Signal | Period | Cases | Median return (%) | Mean return (%) | Ended higher (%) |
|---|---|---|---|---|---|---|
SPY | After crossing above 70 | 1 month | 199 | 1.4 | 1.0 | 68.8 |
SPY | After crossing above 70 | 3 months | 199 | 3.4 | 2.3 | 70.9 |
SPY | All days | 1 month | 8,443 | 1.4 | 1.0 | 65.7 |
SPY | All days | 3 months | 8,401 | 3.7 | 2.9 | 72.0 |
SPY | After crossing below 30 | 1 month | 62 | 3.4 | 3.5 | 67.7 |
SPY | After crossing below 30 | 3 months | 62 | 8.0 | 7.8 | 80.6 |
15 funds pooled | After crossing above 70 | 1 month | 1,955 | 0.8 | 0.6 | 59.6 |
15 funds pooled | After crossing above 70 | 3 months | 1,949 | 2.6 | 2.1 | 66.6 |
15 funds pooled | All days | 1 month | 102,318 | 1.2 | 0.8 | 60.4 |
15 funds pooled | All days | 3 months | 101,688 | 3.0 | 2.5 | 65.7 |
15 funds pooled | After crossing below 30 | 1 month | 882 | 1.9 | 2.0 | 62.4 |
15 funds pooled | After crossing below 30 | 3 months | 882 | 5.1 | 5.0 | 69.5 |
Source: YX Insights
The pattern held fund by fund. A crossing below 30 came before a higher median than all days in 11 of the 15 funds over a month. Over 3 months, it was 12 of the 15. A crossing above 70 came before a lower median in 11 of the 15 at both horizons.
What the RSI test can and cannot show
The test has four limits:
Few cases. SPY's RSI crossed below 30 only 62 times since 1993.
Crossings bunch together. On 21 August 2015, 11 of the 15 funds crossed below 30 on the same day. So the 882 pooled crossings below 30 are far from 882 separate tests.
Windows overlap. 129 of SPY's 199 crossings above 70 came within 21 trading days of the one before, so their 1-month windows share days.
Oversold can go lower. The worst case came on 25 February 2020. In the month after its RSI crossed below 30, SPY fell a further 20.6%.
The result after crossings below 30 does not rest on the crises alone. Leaving out 2008, 2009 and 2020, SPY's median 3-month return after a crossing was still 8.0%, across 50 cases.
The test cannot say whether the gaps will hold. What Is Backtesting? explains why past results can mislead.
How to read the RSI for stocks and funds
Two notes help when reading the RSI on any chart:
Read it as balance, not size. A calm fund and a jumpy stock can show the same RSI. The size of the swings is volatility, covered in What Is Volatility? and Standard Deviation in Investing.
Expect long stays above 70. In late 1996, SPY's RSI stayed above 70 for 18 trading days in a row.
The RSI is a momentum gauge: it measures the strength of a recent move. The Moving Average Convergence Divergence (MACD) is another, built from the gap between two moving averages of price. What Is MACD? and What Is a Moving Average? explain both. The stochastic oscillator is another momentum gauge, compared with the RSI in the questions below.
The RSI scores a price's recent gains against its losses on a scale of 0 to 100. On SPY and the 15 funds pooled, a crossing above 70 came before returns close to those after any day. A crossing below 30 came before stronger ones, but the cases were few and bunched together.
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Common questions about the RSI indicator
What does an RSI of 70 mean?
An RSI of 70 means a price's average daily gain was about 2.3 times its average daily loss, with the last 14 trading days weighted most. J. Welles Wilder called readings above 70 overbought. On SPY, the S&P 500 ETF, the median return in the month after a crossing above 70 was 1.4% since 1993. That matched the median after all days.
How do you calculate RSI?
Divide the average gain over the last 14 days by the average loss, to get RS. The RSI is 100 − 100 ÷ (1 + RS). On SPY's 14 days to 6 October 2026, RS was 2.79, which gives a simple RSI of 73.6. The standard RSI uses Wilder's smoothed averages, which keep some weight from older days. On that basis, SPY's RSI was 62.7.
What is a good RSI for a stock?
No RSI level is good or bad on its own. Readings between 30 and 70 are the normal range: SPY's RSI sat there on 90.2% of days since 1993. Across 15 US-listed funds, crossings below 30 came before higher median returns, while crossings above 70 came before returns close to those after all days.
What is the difference between RSI and MACD?
RSI compares the size of recent gains with recent losses, on a fixed scale from 0 to 100. MACD, short for Moving Average Convergence Divergence, tracks the gap between two moving averages of price, with no fixed range. Both measure momentum. What Is MACD? explains how it is built.
What is the difference between RSI and the stochastic oscillator?
The stochastic oscillator places today's close within the highest high and lowest low of the last 14 days, while RSI compares average gains with average losses. George Lane developed the stochastic in the late 1950s. Its usual lines are 80 and 20, against 70 and 30 for the RSI.
DISCLAIMER: This article is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.