October 19, 2008

XAO Double Bottom

By Planet Wealth

After a huge week like last week I reckon we were all looking for a small relief this week. So what did the XAO really do?

Not much really. After all the hype at the beginning of the week, “This is the bottom” “stock market rallies” , the market finished up back where it started.

Technically the XAO has now made a Double Bottom (DB). That is when a stock stops at a support level, bounces and comes straight back down and ends at the same point.

Another indication that this is a DB is when a well loved indicator, the RSI, has divergence. The RSI measures the inner strength of a stock. If the RSI is rising it means the strength of the stock is building. Divergence is when the stock chart is going in one direction but the RSI is headed in the opposite direction. In the case of the XAO’s DB, the RSI has started to rise but the chart has stayed level, like they are converging, raising the likely hood of a bounce.

(click on images to enlarge)