Daily Economics, Business and Finance Study

October 9, 2026 (KST) · Day 19
Today's Topic: RSI and MACD Are Recalculations of Price — The Limits of Momentum, Overbought Signals and Divergence

1. Review of yesterday's key points

In Day 18, we learned that a moving average is a lagging indicator that smooths trends by averaging past prices, and that bullish alignment and golden crosses do not guarantee the future. Today, we will study RSI and MACD, which recalculate the same price data to show the pace of gains and losses and changes in trend, and examine why treating them as independent predictive signals is risky.

2. Today's core concept

RSI and MACD are both technical indicators derived from price.

• RSI(Relative Strength Index): Compares average gains with average losses over a specified period to express price momentum on a scale from 0 to 100.
• MACD(Moving Average Convergence Divergence): Uses the difference between short- and long-term exponential moving averages to show changes in trend and momentum.

Common default settings are a 14-period RSI and 12-, 26- and 9-period MACD. These are widely used conventions, not natural laws that are optimal for every stock and time frame.

Today's learning objectives are:

1. Understand which price information RSI and MACD reprocess.
2. Avoid mistaking overbought or oversold readings and MACD crossovers for immediate reversal signals.
3. Distinguish the meaning of divergence from the conditions under which it fails.
4. Combine them with price structure, volume, filings and company-value analysis for practical decisions.

3. Concept explained

3-1. Momentum Concerns Both Price Direction and the Pace of Change

A rising share price and an accelerating rise are different observations.

For example, a stock rising 1% every day is in an uptrend, but its pace of increase is constant. If its gains expand from +1% to +3% and +5%, upward momentum can be viewed as strengthening. Conversely, if the stock keeps rising but its gains shrink from +5% to +3% and +1%, the uptrend remains while momentum may be weakening.

RSI and MACD summarize price direction and the pace of change in different ways. Neither directly includes the causes of trading, a company's fair value or future earnings.

\[ \text{Price data} \rightarrow \text{Mathematical transformation} \rightarrow \text{RSI / MACD} \]

To understand why an indicator moved, separately examine earnings, filings, interest rates, investor flows and liquidity.

3-2. RSI Is Based on the Ratio of Average Gains to Average Losses

The basic RSI formula is:

\[ RS=\frac{\text{Average gain}}{\text{Average loss}} \]

\[ RSI=100-\frac{100}{1+RS} \]

A 14-period RSI typically separates the latest 14 price changes into gains and losses.

• On a rising day: record the positive gain and a loss of 0.
• On a falling day: record a gain of 0 and the absolute decline as the loss.
• On an unchanged day: both entries are 0.

The initial averages can be calculated as simple means; subsequent updates commonly use the smoothing method developed by Welles Wilder.

\[ \text{New average gain} = \frac{\text{Previous average gain}\times(N-1)+\text{Today's gain}}{N} \]

Average loss is updated the same way. RSI can differ slightly between chart services if their initial values and data-adjustment methods differ.

If average loss is 0, RSI theoretically approaches 100. Conversely, if average gain is 0, RSI approaches 0.

3-3. RSI 70 Does Not Automatically Mean Sell, Nor 30 Buy

The following ranges are commonly used by convention.

“Overbought” does not mean the price exceeds fair value or is about to fall. In a strong uptrend, RSI can remain above 70 for a long time or rise to 80–90. Selling simply because RSI first crosses 70 can miss a substantial part of the trend.

The same applies to oversold conditions. If company value is deteriorating because of structural earnings weakness, major equity issuance or accounting problems, prices can continue falling even with RSI below 30.

It is useful to interpret RSI differently according to market conditions.

• Uptrend: Observe whether RSI finds support around 40–50 during a correction and then rises again
• Downtrend: Observe whether a rebound in RSI fails around 50–60 before it falls again
• Sideways Market: Consider possible mean reversion near 30 and 70, while checking price support and resistance

These ranges are starting points for analysis, not absolute rules.

3-4. RSI 50 Shows the Balance Between Upward and Downward Momentum

An RSI of 50 means average gains equal average losses, so \(RS=1\) holds.

\[ RSI =100-\frac{100}{1+1} =50 \]

If RSI remains above 50, recent average gains exceed average losses; below 50, the reverse applies.

Instead of focusing only on 70 and 30, also observe the following.

• Are RSI highs and lows rising?
• Does it regain 50 after a correction?
• Do RSI lows form above 40 during an uptrend?
• Do RSI rebounds end below 60 during a downtrend?

However, crossing above RSI 50 also results from prices rising first, so it is not an independent leading signal.

3-5. MACD Is the Distance Between Two EMAs

The standard MACD line subtracts the 26-period EMA from the 12-period EMA.

\[ \text{MACD line}=12\text{-period EMA}-26\text{-period EMA} \]

The 9-period EMA of the MACD line is called the signal line.

\[ \text{Signal line}=9\text{-period EMA of the MACD line} \]

The histogram is the difference between the MACD line and the signal line.

\[ \text{MACD histogram}=\text{MACD line}-\text{Signal line} \]

MACD crossovers are also lagging signals that follow price changes. As with moving averages, false signals can be frequent, particularly in sideways markets.

3-6. The Histogram Reflects Changes in Momentum More Than Price Direction

A positive MACD histogram does not guarantee that the stock rises every day. It means the MACD line is above the signal line.

For example, suppose the histogram changes as follows.

\[ +1.2\rightarrow+0.8\rightarrow+0.3 \]

It remains positive but is shrinking, so upward momentum may be weakening. Conversely, the following change in negative territory may indicate weakening downward momentum.

\[ -1.2\rightarrow-0.7\rightarrow-0.2 \]

However, a shrinking histogram does not itself mean a trend reversal. It may represent a normal slowdown after a strong advance, or a temporary rebound within a downtrend. Check the structure of price highs and lows and the position relative to the zero line.

3-7. Absolute MACD Values Are Difficult to Compare Directly Across Stocks

MACD is the difference between two moving averages and retains the price's units. A MACD of KRW 500 for a stock priced at KRW 10,000 has a different relative meaning from KRW 500 for a stock priced at KRW 100,000.

For cross-stock comparisons, an indicator such as the Percentage Price Oscillator (PPO) standardizes MACD as a percentage by dividing it by the long-term EMA.

\[ PPO = \frac{\text{Short-term EMA}-\text{Long-term EMA}}{\text{Long-term EMA}} \times100 \]

However, adding another indicator does not create new information. PPO also transforms the same price data into a ratio.

3-8. Divergence Occurs When Price and the Indicator Move in Different Directions

Typical regular divergences are as follows.

For example, if a stock makes higher highs at KRW 50,000, then KRW 55,000 and KRW 58,000, but its RSI peak falls from 82 to 73, this is bearish divergence. The price rose, but the relative strength of recent gains weakened.

However, divergence is a warning of a possible reversal, not a confirmed signal of its timing. In a strong trend, prices can continue rising after repeated bearish divergences, and adverse news can produce further new lows after a bullish divergence.

To use divergence in practice, the following checks are needed.

• Has the price actually broken beyond the previous swing low or high?
• Does volume confirm a trend reversal?
• Have the slopes and alignment of moving averages changed?
• Has the direction of earnings, guidance or disclosures changed?
• Are the two highs or lows being compared meaningful points on the same time frame?

3-9. Using RSI and MACD Together Does Not Create Two Independent Pieces of Evidence

RSI, MACD and moving averages all come from the same price series.

\[ \text{Closing prices} \rightarrow \text{Moving averages / RSI / MACD} \]

All three indicators giving bullish signals does not confirm three independent pieces of information. Signals can overlap because different formulas are applied to the same underlying data. This can be viewed as redundant confirmation or indicator overlap.

More independent sources of confirmation include:

• The structure of price highs and lows
• Trading volume, trading value and investor flows
• Changes in earnings and guidance
• Upward or downward earnings estimate revisions
• Valuation and market expectations
• Interest rates, exchange rates and industry cycles

Technical indicators should support the organization of price behavior, rather than replace this evidence.

3-10. Changing the Period or Time Frame Changes the Signals

RSI 14 and MACD 12/26/9 are widely used defaults, but signals vary with a stock's volatility, the trading objective and the chart's time frame.

• Shorter periods generate faster signals, but also more noise and false signals.
• Longer periods smooth the trend but confirm turning points later.
• Daily RSI may be overbought while weekly RSI is neutral.
• A bullish MACD crossover on an intraday chart may be a small rebound within a long-term downtrend.

Selecting retrospectively the period with the best historical performance creates substantial overfitting risk. Testing should include multiple market regimes and trading costs.

4. A simple numerical example

The following are hypothetical company A's 6 hypothetical trading days of closing prices for learning are shown. Prices are in KRW; the initial calculation of a 5-period RSI is used to simplify the explanation.

① 5-Period Average Gain and Average Loss

\[ \text{Average gain} = \frac{3+2+0+4+0}{5} =1.8\text{ KRW} \]

\[ \text{Average loss} = \frac{0+0+1+0+2}{5} =0.6\text{ KRW} \]

② RS and RSI

\[ RS=\frac{1.8}{0.6}=3 \]

\[ RSI =100-\frac{100}{1+3} =75 \]

An RSI of 75 means that, over the latest 5 changes, the average gain was 3 times the average loss. It does not mean the price must fall the next day.

③ A Hypothetical MACD Calculation

Assume that, on the same day, Company A's 12-period EMA is KRW 108.4 and its 26-period EMA is KRW 105.9.

\[ \text{MACD line}=108.4-105.9=2.5\text{ KRW} \]

If the MACD signal line is KRW 1.8, the histogram is:

\[ \text{MACD histogram}=2.5-1.8=0.7\text{ KRW} \]

The MACD line is above both 0 and the signal line, so the short-term average is higher than the long-term average, and upward momentum is stronger than the smoothed benchmark.

If the next day's MACD line is KRW 2.2 and its signal line is KRW 1.9, the histogram is KRW 0.3.

\[ 2.2-1.9=0.3\text{ KRW} \]

The histogram remains positive but has contracted from KRW 0.7 to KRW 0.3. This does not mean the uptrend has immediately ended; it indicates that upward momentum may have slowed.

5. Practical use in equity and company analysis

① Identify the Market Regime First

Before examining RSI and MACD, use price structure and moving averages to identify an uptrend, downtrend or sideways market.

The same RSI reading of 70 may reflect strong momentum in an uptrend, or warn of short-term overheating near long-term resistance.

② Use RSI as a Conditions Checklist Rather Than an Entry Button

If an attractively valued company is in an uptrend, RSI can be used as follows.

1. Do not sell immediately merely because RSI exceeds 70.
2. Check whether price broke through prior resistance with supporting volume.
3. During the subsequent pullback, watch whether RSI holds around 40–50.
4. Check whether price holds the breakout zone and rising moving averages.
5. Check whether earnings estimates and guidance remain intact.

Conversely, do not buy a dip solely because RSI is below 30. First examine whether company value has deteriorated and why the price is falling.

③ Use MACD to Examine Trend and Momentum Changes Together

The following combination is more useful than a signal-line crossover alone.

• Is MACD rising again above the zero line?
• Is the histogram expanding again after contracting?
• Is price also making higher lows and higher highs?
• Does volume increase during advances?
• Is there an earnings or disclosure catalyst?

A bullish MACD crossover below the zero line might mark the start of a long-term uptrend, but could also be a technical rebound within a downtrend. Seek additional confirmation from a recovery above zero and a change in price structure.

④ Always Attach Price-Confirmation Conditions to Divergence

Rather than selling immediately upon finding bearish divergence, you can specify conditions such as:

• A closing break below the previous swing low
• A break below an upward trend line or medium-term moving average
• Increased volume on down days
• The MACD histogram turning negative
• Lowered earnings expectations or guidance

If divergence appears but price continues making higher highs and higher lows, the uptrend remains intact.

⑤ Turn Conflicts Between Fundamentals and Price Momentum into Questions

When technical indicators and fundamentals conflict, do not automatically dismiss either. Use the conflict as a starting point to check whether the market is reflecting information you have missed.

⑥ In Backtests, Respect When a Signal Could Have Been Known

Avoid the following errors when testing RSI or MACD strategies.

• Assuming a signal calculated from that day's close could be executed at the same closing price
• Survivorship bias from excluding delisted stocks
• Using prices that do not reflect splits and dividends
• Excluding commissions, taxes, bid-ask spreads and market impact
• Overfitting by choosing only the best RSI and MACD periods
• Data snooping by repeatedly testing indicators and adopting only combinations that happened to perform well

If a signal is calculated only after the closing price is finalized, execution should generally be assumed from the next available trading opportunity. Actual fills can differ from backtest prices because of gaps and liquidity.

6. What to look for in filings

RSI, MACD and divergence are not official metrics provided in financial statements or company filings. Price indicators are calculated from market data, while the business reasons and corporate actions behind indicator changes are checked in filings.

Korean Companies: DART and KIND

Financial Supervisory Service DART and Korea Exchange KIND for the following.

Whether a disclosure is released intraday or after the close can determine whether it affects that day's indicator or the following trading day's indicator.

U.S. companies: SEC EDGAR

SEC EDGAR for the following documents.

• 10-K·10-Q: Earnings, cash flow, risk factors and capital structure
• 8-K: Material events such as earnings releases, acquisitions or disposals, major contracts and restructuring
• Form 4: Insider transactions by officers and directors
• Schedule 13D·13G: Changes in major shareholders' holdings and investment intentions
• S-3·424B: Stock and convertible-security issuance and potential dilution
• DEF 14A: Compensation plans, stock-based compensation and shareholder meeting proposals
• Split and Dividend Disclosures: Check whether adjusted prices are being used

In the US market, where announcements before and after the regular session and extended-hours trading are common, indicators calculated only from regular-session closes may reflect the latest information with a delay.

Market data to check outside filings

Record the as-of date, time frame, input prices and settings together to enable reproduction and comparison, for example: “As of the October 9, 2026 close; daily adjusted closing prices; RSI 14 / MACD 12-26-9.”

7. Key takeaways

• RSI and MACD are derived indicators that mathematically recalculate prices; neither directly contains future information.
• RSI expresses the relationship between average gains and average losses on a scale from 0 to 100.
• RSI at or above 70 means recent upward momentum was strong; it does not indicate an immediate sell or overvaluation.
• RSI at or below 30 is not an immediate buy signal either; first check whether company value has deteriorated.
• MACD is the difference between the short- and long-term EMAs, and the signal line is an EMA of the MACD line.
• The MACD histogram is the difference between the MACD and signal lines; changes in its size can help identify slowing momentum.
• Divergence warns that price and the indicator are moving in different directions, but does not guarantee when a reversal will occur.
• RSI, MACD and moving averages derive from the same prices, so agreement among them does not create multiple independent pieces of information.
• The same indicator value has different meanings across uptrends, downtrends, sideways markets and time frames.
• In practice, combine them with price structure, volume, filings, earnings estimates and valuation.

8. Three review questions

Question 1

A stock's 5-period average gain is KRW 2.4 and its average loss is KRW 0.8. Calculate RS and RSI.

Question 2

A company's MACD line and signal line were KRW 3.0 and KRW 2.2, respectively. The next day, they became KRW 2.7 and KRW 2.4. Explain the histogram values on both days and the change in momentum.

Question 3

The stock made a new high above its previous peak, but its RSI peak fell. Explain why this cannot be treated as an immediate sell signal and what further checks are needed.

Answers and explanations

Answer 1

\[ RS=\frac{2.4}{0.8}=3 \]

\[ RSI =100-\frac{100}{1+3} =75 \]

An RSI of 75 means the average gain over the calculation period was 3 times the average loss. It does not guarantee a decline the next day.

Answer 2

The first day's histogram is:

\[ 3.0-2.2=0.8\text{ KRW} \]

The next day's histogram is:

\[ 2.7-2.4=0.3\text{ KRW} \]

On both days the MACD line is above the signal line, but the histogram contracts from KRW 0.8 to KRW 0.3. Upward momentum may have weakened, but this does not mean the price trend has immediately turned downward. Further check price highs and lows, position relative to the zero line, volume and earnings changes.

Answer 3

Because price made a higher high while RSI made a lower high, this is Bearish Divergence. This warns of slowing upward momentum, but in a strong trend, prices may continue rising after repeated divergences.

Check the following additional points.

• Whether price breaks below a meaningful previous swing low
• Whether the slope and alignment of medium-term moving averages change
• Whether volume increases during declines
• Whether the MACD histogram and structure around the zero line weaken
• Whether earnings estimates or guidance are lowered
• Whether the current valuation overstates the growth rate that can be sustained

Next Lesson — Day 20:
“With Investor Flows, Why They Bought Matters More Than Who Bought — Reading Foreign, Institutional, Retail and Program Trading”