Do Double Overbought RSI and Bollinger Bands on the SPX Increase Reversal Odds?

There are two widely used methods to flag overbought conditions:

1. A close above the upper Bollinger Band.
2. An RSI reading above 70.

Both are intended to identify markets that have risen quickly and may be due for a pause. We tested these signals on the S&P 500 using 20 years of data.

The S&P 500 has a built-in upward bias. Across all trading days, the index closes higher one week later 59.6% of the time, with an average return of +0.21%.

When price closes above the upper Bollinger Band, the next week is higher only 54.8% of the time, with an average return of -0.02%. The typical weekly gain nearly disappears once price stretches above the band.

The effect is stronger when both conditions are present at the same time. On the 89 days when the S&P closed above its upper band and its RSI was also above 70, the index closed higher the following week just 50.6% of the time, with an average return of -0.17%.

Chance the S&P 500 closes higher one week later. The more overbought it looks, the closer the odds fall toward a coin flip.

The opposite setup ran the other way. Closes below the lower Bollinger Band led to a higher close one week later 61.9% of the time, with an average gain of +0.68%. This pattern appeared on 268 days.

S&P 500 daily closes, 2006 to 2026. Bollinger Band set to 20 days and 2 standard deviations, RSI set to 14 days. "Next week" means the following 5 trading days.

Setup	Occurrences	Green next week	Avg next week
Below lower band (oversold)	268	61.9%	+0.68%
Any day (baseline)	every day	59.6%	+0.21%
Above upper band (overbought)	250	54.8%	-0.02%
Above upper band + RSI over 70	89	50.6%	-0.17%