Ask Colin

What is happening when a V-Bottom forms in a market?

V-bottoms usually indicate a panic. Investors sell out at any price. This may be exacerbated by short-selling, though the uptick rule may limit them a bit.

Then the panic comes to an end as consensus perceptions change really quickly and everyone realises that the price has been driven to unrealistically low levels. There is a scramble to get back into the stock. A strong rally ensues, which is magnified by short covering.

Quite often, a V-bottom is followed by a right hand extension in a sideways pattern as the market waits for confirmation of its new expectations and accumulation by savvy investors takes place.

Keyword: