August 19, 2013 (Chinavestor) The Dow Jones Industrial Average (INDEXDJX:.DJI) suffered its worst week in 2013 last Friday. The index fell 344.04 points or -2.23% as higher interest rates and an uncertain FED support sent bulls hiding. Still, the index itself is not considered oversold as the following chart reveals. Current closing at 15,081 is still far from theoretical lows of 14,525. More downside is possible for the index according to the oversold chart below.
The Home Depot Co. (NYSE:HD) bounced back on Friday after reaching an extreme oversold position late Thursday but is still on top of the oversold chart of all 30 Dow components. The stock is vulnerable going forward now that it took a breather on Friday.
Cisco Systems (NASDAQ:CSCO), a stock that fell the most among the Dow components last week, is still not considered oversold. This implies downside risk exceeds upside potential.
The same goes for Wal-Mart (NYSE:WMT), a stock that fell hard but is still far from theoretical lows.
There are no overbought components of the 30 member Dow Jones Industrial Average (INDEXDJX:.DJI) on Monday morning. Du Pont (NYSE:DD) is trading closest to theoretical highs but is really far from an overbought position.
As a matter of fact, all 30 Dow components that advanced for the past two weeks have been trading in a narrow range, except for Caterpillar Inc. (NYSE:CAT).
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.