Now let's understand how to identify a potential near term bottom. Is below chart providing any clues?
- Market is near support area of 10000, but will it hold?
- RSI is in oversold territory and more important forming a subtle divergence as market made new low
- MACD is also forming subtle divergence
- PPO is below -5 territory suggesting a possible bounce in coming weeks and also forming subtle divergence
- Everything is great: Market bounces of the support area and starts another massive BULL run and in couple of months manages to make ALL TIME HIGH. Very optimistic scenario and markets seldom provide such predictability.
- Things will turn ugly: Market undergoes a bounce and forms the right shoulder (reaching close to 10900-11000 area in couple of months (we can call it year end rally). As soon as everyone becomes bullish, market takes the turn for the worse and catches everyone off guard again but this time anyone who did not learn the lesson will bear massive pain. Eventually support zone will break and market will drop all the way back to 9000 support area.