The Process

Remember what I mentioned the last few days, bottoms/tops are not events (Like a "V" shaped reversal), especially not important bottoms or tops; they are a process.

I've been fooling around with some charts/indicators and collaborating on an indicator with another member.

Here's some interesting things I found. I've looked at a lot of bottoms with this set up and nearly all are exactly the same.

 First what you are looking at is a volatility indicator (red line in the price window, price has held below this indicator throughout the decline. The second thing in the price window is my Trend Channel (blue channel). Below is a 50 period Stochastics. The hash marks in the bottom of the price window are as follows, the lighter red indicates price is below the Volatility indicator, the pale green indicates price is above the volatility indicator, The darker green indicates Wilder's RSI (period 22) is above 50 and the darker red indicate RSI is below 50. This is a decline, bottoming process and reversal from July of 2010 in the SPY, but there are numerous examples I could have chosen.  During the period of decline, the red signals are uninterrupted and the decline is not in question, then we get the first hints of a bottom when the green hash marks show up, Stohastics starts moving up in to overbought territory, but this isn't representing overbought, it's representing strength, just as when it is in oversold territory it is indicating weakness. The trend Channel flattens and starts moving up, however there's still volatility as a base or a top tend to be very volatile. Then the second set of green hash marks usually indicate a reversal is at hand with Stohastics above 80. Notice that although there is up and down volatility, the trend channel holds all of the price action.

Now our current scenario, notice the similarities. Stochastics is moving above 80, RSI is positive. So we may see some continued price volatility, but the trend channel should hold any downside volatility as we get closer to what has been a pretty reliable process in the many bottoms I've looked at.

The bottom line, I still expect price volatility, but it seems by historical comparisons that we are entering the end of the basing process. 3C also has a large head start on many of the previous bottoms I looked at.