January 19, 2012 (Chinavestor) The first ten stocks on the following screen are extremely overbought. This suggests upside is limited and these stocks are expected to take a breather. All of these stocks have reached theoretical highs and advanced too fast, too much, according to this technical indicator. To the contrary, China Telecom (NYSE:CHA) and China Unicom (NYSE:CHU) are extremely oversold, see second chart on this page.
China telecom (NYSE:CHA) and China Unicom (NYSE:CHU) became extremely oversold. This suggests these stocks have hit bottom and are expected to bounce back up soon.
Overbought A technical condition that occurs when prices are considered too high and susceptible to a decline. Overbought conditions can be classified by analyzing the chart pattern or with indicators such as the one above. A sharp advance from $15 to $30 in 2 weeks might lead a technician to believe that a security is overbought. Or, a security is sometimes considered overbought when the stock is trading out of its trading envelope and is approaching the theoretical high. It is important to keep in mind that overbought is not necessarily the same as being bearish. It merely infers that the stock has risen too far too fast and might be due for a pullback.
Oversold A technical condition that occurs when prices are considered too low and ripe for a rally. Oversold conditions can be classified by analyzing the chart pattern or with indicators such as the one above. A sharp decline from $30 to $15 in 2 weeks might lead a technician to believe that a security is oversold. Or, a security is sometimes considered oversold when the stock is trading below its trading envelope and is approaching theoretical lows. It is important to keep in mind that oversold is not necessarily the same as being bullish. It merely infers that the security has fallen too far too fast and may be due for a reaction rally.
If you like us, spread the word to the fellow investors on your favorite Social Bookmarking websites
