I love your website and check the stock of the day everyday!
You always state “don’t anticipate the bottom, confirm the bottom”. Can you tell me how to do this as I’ve been burned a few times this past year trying to anticipate a bottom?
Thanks for your support it is very much appreciated!
Here is an example of a stock that broke out of a range bound pattern with support at $42 and resistance at $47.50. The confirmation of the bottom was the break above $47.50, with the MACD giving a clear signal in October of 2007 and the golden cross of the 50 day moving average breaking above the 200 day moving average.
Here’s another example of a short term bottom for a short term trade.
If you look at the November 2008 high at $4 and draw a straight line to low of November 20 at $1.40 this is the trend line that provided resistance against an advance. Once it broke above the resistance the MACD generated an upside signal and the RSI started moving out of oversold territory.
The key to a confirmation of a bottom is a breaking through a trend line that is providing resistance and an increase in volume to suggest that the buyers are taking control and the sellers are exhausted. If you have other signals indicating a change in momentum such as the MACD and RSI then it strengthens the case.
I suggest that you also research other patterns such as a double bottom which is a reversal pattern from a decline. In so many charts these days we are seeing such steep declines and big downside gaps that you have to shorten up you time frames and take profits when they are available because they may not be there for long.
It's believed one can't confirm a market "bottom" for weeks -- or months after the fact. What's your call? Have we bottomed?
- No, but we're close (31%)
- Yes, and I'm buying (24%)
- No, and there's much more pain ahead (22%)
- Yes, but I'm holding (12%)
- Have no idea (11%)