False Base broken - now heading below $2, page-591

As mentioned before in my discussion on momentum divergence.

"An initial oversold momentum usually sees a bounce but can often be followed by a lower low on price which makes a higher low on the relative strength momentum because the RSI tracks the relative strength of the movement - a move lower but on weaker momentum than the first fall shows up as a higher low on the RSI and is considered a buy signal as bullish momentum divergence indicates that the selling pressure is losing strength."

This was the chart outlining the potential price action 2 days ago:

How it actually turned out. Price on the 31st continued the short term rally up until it hit supply and then declined along the supply line. Then this morning hits a new low in price but on a clear divergence in oversold momentum showing a weakening of trend and bullish divergence. No surprise a rally in price occurs off it until it hits overbought momentum. This establishes where supply exists.


Why you generally want to not take a position in these big gap down moves until the market has worked out the bounds of supply and demand.