- If a market is extremely oversold and has declined for a long period of time then it is more likely to have a V-type bottom.
- If a retest of the lows doesn't occur (in this case) within two months then the bottom is most likely in.
- If a market is extremely oversold but has only declined for a short period of time (1987 crash, 2008 crash) then a base building process (or two steps forward, one step back) should be expected over the coming weeks.
- If a market is extremely oversold for an extended period of time then the selling has been exhausted, therefore leaving little resistance to the rebound. This explains the V bottom. Conversely, if a market hasn't been oversold for an extended period then there are still some sellers that come in after the bottom and slow down the rebound.
"The bottom line is the current correction or consolidation is quite healthy for the sector. Many stocks have made huge runs in a very short period of time and are set to digest those gains and correct short-term overbought conditions. Be patient over the coming days and weeks and use the 50-dma as a guide for support and potential lows."