The RSI is the plot in red at the top. When the RSI penetrates the support line from above and continues to fall it is a bearish indication for prices. A support line once penetrated becomes a resistance level and vice versa. The longer a trendline drawn at a support or resistance level the more significant it is when penetrated. The more a trendline is validated, whether it be a support level or resistance level, the more significant penetration of the trendline is in determining the future path of prices.
Penetration gives indication of a reversal of the price trend.
Validation of a trendline occurs when price approaches and is turned back at the support or resistance level indicated by the line. All formations, patterns, indicators and technical tools fail at various times and so should only be used to build a body of evidence in forming a trading decision rather than being solely relied upon. There are a number of valuable studies that lead to intuitive understandings about price and volume but a strong compliment to technical analysis is an understanding of the trends and changes in the fundamentals and economic activity that ultimately lead valuation levels in the markets. All rights reserved.