Constructing a relative spread-strength oscillator for staged cycle confirmation

From visual cycle hunting to a constructed proxy

The constructed series is the signed difference of a shorter simple moving average minus a longer simple moving average, passed through a relative-strength-index formula and then smoothed with another average.

A relative-strength-index is a bounded oscillator of up versus down closes over a lookback. Here it is applied not to price itself but to the signed gap between two simple moving averages.

The design intent is to record expansion of that average spread during a directional move and contraction as the averages converge during a correction. In that role the oscillator can stand in as a proxy for cycle highs and as a confirmation of cycle lows.

How extremes are read

On the illustrated longer-horizon chart, plotted extremes coincided with oscillator readings below 30 or above 70, a pairing described as common on weekly-scale charts.

Readings above 70 or below 30 are framed only as identifying reversal potential, not as trade signals.

Lower-timeframe confirmation

The lower-timeframe confirmation oscillator is a rapid relative-strength-index variant. Its relative-strength term is the lookback sum of up closes divided by the lookback sum of down closes, then mapped as 100 minus 100 divided by one plus that ratio.

That rapid variant sums raw up and down increments without Wilder smoothing.

Divergence as a warning, not an entry

A divergence is a mismatch between a new price extreme and a failing extreme on the oscillator. It is used only as a warning that a cycle turn may be forming, not as a standalone entry.

A price-oscillator mismatch at the illustrated 1.1640 November 2005 low is presented as strengthening the cycle-turn case, with the same caution that a divergence should not be the only signal.

On the daily chart of that same low, the rapid variant printed a bullish divergence, after which a resistance break is shown as the further structural event used to complete the hypothesis.

Cycle highs and trendline breaks

A trendline is a slope drawn through successive swing points on the lower-timeframe price chart. Its break is treated as the additional structural confirmation after an oscillator extreme or divergence appears.

A later panel presents a cycle high together with a break of a steep upward-sloping trendline and a rapid-variant divergence as a joint indication that the preceding advance may have ended.

When the constructed series lags

During volatile stretches the spread-strength oscillator is described as slow to react. A subsequent pullback in the rapid variant toward the oversold region is offered as a possible later observation rather than an immediate trigger.