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Author: amilian Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 459051  
Subject: BBand Bottom Date: 11/5/2001 11:00 PM
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Is the naz bottom really in? I'll go out on a limb and say it is. I'm basing my opinion on the following:

Set up a daily chart for COMPQ with Bollinger Band step of 100 and Std Dev of 2.5. Set RSI of 14. Do it all the way back to 1985. If you've got eSignal, it'll be a breeze.

Now look at each occasion that the naz fell below the lower Bollinger Band at a time when RSI was below 20%. There is a trend reversal every time. Granted, the reaction time and the strength of each reversal differs for each, but there is little doubt that a bottom is delivered -whether it's a 'w' bottom or a slower less identifiable recovery.

In Oct 87 there is a weak first bounce after the oversold condition, but a 'W' bottom was in later that month. In August 90 the oversold conditions failed twice that month and the bottom was in by October of that year. In March 94 there was an oversold condition that seemingly failed until a bottom 3 months later.

But when comparing these occasions to market conditions today, it is important to remember that in the past, there was no significant or sizeable bounce the first several days/week immediately following the drop below the B band. And more noteable is the fact that no real identifable points of resistence were broken immediately following those times in the past. But recently, we seem to have a sizeable and significant bounce, on volume, and accompanied by breaches of several points of resistence.

There are some who are looking for an identifyable 'w' bottom - a retest of Sept lows before they will be convinced that the bull is in. John Bollinger himself believes that lows will be tested before a bottom forms. Personally, I thought the same way until I'd had a close look at what could be described as a 'w' bottom formed on 9/21 and 9/27. Perhaps this doesn't qualify as a true 'w' bottom. Yet things seem very different to the way things were in the past. Perhaps today the market reacts quicker and with more certainty. Perhaps a 'v' bottom really is possible...

A few other thoughts: In addition to the daily chart with the settings above, I've also been looking at an hourly interval chart and a 30 min interval chart set over 60 days with B Bands set at 200/2.75 and 100/2.5 (each overlayed on each chart) I also use RSI of 14 with each of these to monitor for overbought conditions during the current rally. So far, the naz rally seems not to have become overbought, and it could be argued that while this remains so, there will be no test of Sept lows.

I'll have to keep up with this and post any daily or intraday overbought condition and any reaction to it.

One thing I have noticed is that on the shorter interval charts such as 15 min, some overbought conditions have been ignored and the naz has continued to rise. I'm speaking of 10/3, 10/4, 10/25 and 10/26 on a 15 min chart with the above BBand and RSI settings.

What will be interesting will be tomorrow's reaction. Personally, I'd love to see more of the same!!

Greg.
(Still learning but willing to go out on a limb)

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