When a stock drops sharply, like RSI did with more than 14% in a single trading day, it can make many traders panic. But here’s a key lesson: sharp drops often contain hidden opportunities. In this case, the drop looks like a buying climax, signaling a temporary oversold condition and a potential upside setup.
1️⃣ Context Matters – Don’t Panic After a Drop
Before reacting, step back and look at the bigger picture. RSI has been in a strong bullish trend for several months. One of the most important lessons in trading is: after a structured trend, the market rarely reverses immediately. Instead, it tends to pause, take a rest, and trade sideways for a while.
This sideways movement is called the price acceptance phase. During this phase:
- Price doesn’t trend strongly in either direction.
- It oscillates between support and resistance levels, forming a trading range.
- This is the market’s way of digesting previous gains before deciding its next big move.
If you want a deeper understanding of this phase and how to trade it, I’ve explained it in detail here.
2️⃣ Watch the Key Support Zone
Currently, the 15–16 zone acts as a strong support area. Think of it as the market’s safety net. If RSI dips into this zone, buyers are likely to step in, preventing a further drop and potentially setting up the next leg upward.
3️⃣ Potential Upside – MTF Perspective
Even within this consolidation phase, RSI has room for a meaningful upside. According to MTF analysis, certain levels can act as natural targets during the range:
- Price can stabilize around 22 despite trading range behavior.
- If momentum builds, the stock could move toward 24, offering a potential upside of nearly 40%.
For more on this approach, check out the guide here: HTF Analysis.
⚡ The Takeaway
The recent sharp drop might look alarming, but RSI is likely in a consolidation/acceptance phase, not a full-blown bearish reversal. Traders should watch the 15–16 support zone and monitor price behavior near 22–24 levels. The real upward move often comes after the market digests its previous trend, so patience and observation are essential.
Cheers !!
Arup MSP
Creator of Pivot Mastery (The Practical Way to Understand Market Context)
Social Profiles:
Follow on X
Follow on Facebook