August 16, 2013 (Chinavestor) The Dow Jones Industrial Average (INDEXDJX:.DJI) plunged 225.47 points, the second three digit fall in a row, on Thursday. The index is not oversold but is trading in the lower end of its trading envelope. See chart below for details.
As far as components of the 30 member Dow are concerned, Du Pont (NYSE:DD) is still trading closest to theoretical highs but is far from being overbought. Caterpillar (NYSE:CAT) is still showing improvement but has been leveling off lately. Most of the action took place on the oversold Dow monitor. Scroll down for details.
One of the first observation on the oversold screen is that Home Depot (NYSE:HD) became oversold! The stock is trading right at theoretical lows. This implies the decline is going to have to come to an end, at least temporarily. Upside potential exceeds downside risk for Home Depot (NYSE:HD), according to the oversold indicator below.
Cisco Systems (NASDAQ:CSCO) is not considered oversold yet!
Wal-Mart Inc. (NYSE:WMT) is also not oversold despite recent decline. Neither CSCO nor WMT have reached theoretical lows yet.
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.