Synchrony RSI Strategy

Synchrony has high beta nature, meaning it frequently reaches RSI extremes (both oversold and overbought). These extremes create tradeable opportunities. The stock also tends to mean-revert after earnings-driven extremes, making RSI particularly effective for timing entries and exits.

Mean reversion fades extremes - buy when RSI is oversold, sell when overbought. Momentum trades in RSI direction - buy when RSI shows bullish momentum (above 55), sell when bearish (below 45). Use mean reversion in ranging markets, momentum in trending markets.

RSI can stay oversold for extended periods in strong downtrends. Buying at RSI 30 is 'catching a falling knife.' Waiting for crossback (RSI to go above 30 from below) confirms that selling pressure has actually stopped and reversal is beginning.

Net charge-offs are loan balances a lender writes off as uncollectible (borrowers stopped paying). Rising charge-offs and delinquencies mean Synchrony's loans are going bad - it loses money and must build reserves. Credit-deterioration concerns can crash consumer-finance stocks. Stable or improving charge-offs are positive for the stock.

Divergence occurs when price and RSI move opposite directions. Bullish divergence: price makes lower low, RSI makes higher low - signals selling exhaustion, potential reversal up. Bearish divergence: price makes higher high, RSI makes lower high - signals buying exhaustion, potential reversal down.

In high volatility (ATR percentile > 75), use wider bands (25/75). In low volatility (ATR percentile < 25), use tighter bands (35/65). In strong uptrends, use 40/80 since RSI rarely reaches 30. In downtrends, use 20/60 since RSI rarely reaches 70.

Synchrony is highly correlated with XLF (~0.85). If Synchrony is oversold but XLF isn't, it suggests a company-specific issue - don't blindly buy. If both are oversold, it's a sector selloff - quality stock opportunity. Sector context separates good oversold from bad oversold.

ITM calls/puts (delta 0.65-0.75) or vertical spreads work well. Mean reversion expects quick 5-8% moves resolving in 5-10 days. ITM provides good delta with manageable theta. Spreads define risk and work well when IV is elevated after selloffs.

Volume shows conviction. RSI oversold bounce with high volume (>1.5x average) means institutions are buying - stronger signal. Low volume bounce may fail. Similarly, RSI reaching overbought on declining volume shows exhaustion buying - reversal likely. Volume validates or questions RSI signals.

Weekly RSI sets directional bias (above 50 = bullish environment). Daily RSI generates signals (extremes, crossovers, divergences). Hourly RSI fine-tunes entry. Best trades occur when all three timeframes align. Don't fight weekly direction with daily mean reversion unless weekly also at extreme.

Failure swing is when RSI fails to make new extreme after initial extreme. Bullish: RSI drops below 30, bounces, pulls back but stays above 30, then breaks bounce high. Shows internal strength. Trade by entering when RSI breaks the reaction point. These often precede strong moves as momentum has already shifted internally.

Optimize RSI period (9/14/21) and thresholds (28/72 often optimal). Add signal quality score (RSI extremity, volume, sector, multi-timeframe, divergence). Classify regime (ADX > 25 = momentum, < 20 = mean reversion). Backtest over 5+ years. Target: Win rate > 55%, profit factor > 1.8, Sharpe > 1.0.

Build a transparent base-rate table by bucketing past signals on observable conditions and counting outcomes. Typically sector alignment (XLF / peer consumer-lender RSI) and volume ratio show the highest hit-rate gaps - confirming traditional wisdom that sector context and volume confirmation matter most. RSI value itself is necessary but not sufficient. The interaction is what counts: 'RSI < 30 + high volume + sector oversold + strong closing strength' historically reverses far more often than RSI < 30 alone. Because it is just counting historical outcomes within a condition combination, every number is auditable and reproducible - no opaque model.

Mean reversion: Delta 0.65-0.75 (ITM), quick moves benefit from some gamma, minimum 15-20 DTE. Momentum: Delta 0.55-0.60, roll higher as move progresses, 20-25 DTE. Use spreads when IV elevated (percentile > 60) to neutralize vega. Calculate theta impact before entry.

Base allocation 6-8% of portfolio, max 10% for high-conviction RSI signals. Historical VaR 12-15% - size to contribute proportional portfolio VaR. Strategy drawdown limit -18% (accommodates high beta). Scale position size to signal quality score (Score 8-9: 100%, 6-7: 75%, 5: 50%, <5: no trade).