Is it good or bad when a stock is over bought, does it lose $$ or gain Vaule?

Question

Is it good or bad when a stock is over bought, does it lose $$$ or gain Vaule?

Answer 1

It doesn't matter who says a stock is overbought. No one has this information because it doesn't exist. There have been countless times someone said a stock was overbought and afterwards price doubled. Whoever said this stock is overbought doesn't have a grip on the fundamental or speculative aspects of the nature of markets, but for the sake of the question if a stock is overbought then it could be good or bad. It depends on whether or not you currently have long or short positions and whether you were planning to go long or short. If a stock truly is overbought then price is likely to go down. This is not written in stone. Price may also continue upwards.

Answer 2

well its good for the people who are already invested in it, but it wouldnt be a good idea to invest in it right now because its at tis peak, it cant get any higher so all there is is to go down.

Answer 3

Overbought/oversold levels are technical analysis terms used by  traders.

Those who trade rangebound markets use these levels to time their trades. If a stock is overbought, traders look for confirmation before going short.

If a stock is showing overbought levels at resistance, you can be sure that traders will short this stock right then, or wait for confirmation that resistance has held before going short.

To answer your question, in a way, yes, the stock's price that is overbought could go down in the near term depending on how the market is doing.

Hope this helps.

Jim http://jsforex.blogspot.com

Answer 4

When a stock is overbought, it is perceive as the stock is overprice at that period.  It does not directly contribute to lose $$$ or gain $$$.

Answer 5

I'm not sure what you really mean, but if a stock is really over-hyped/ bought (everybody is talking about it) and has been oversold, then I would have to say, avoid it like the plague. It is overpriced. What I mean is, if a stock's price to earnings ratio is too high, then people have been buying it with hopes that its price will increase.

Think about this, Oil is at about $140/ barrel. How much higher could it go? How about gold? Wouldn''t you think that in the not-too-distant future, folks will be taking their profits, selling, and causing the price to fall?

Think about the dot.com (sp?) bust in the early 2000s or the housing market collapse a few years ago. Too many speculators got onboard, Everybody thought the good times would not end and demand dictated that the prices to go through the roof because even though there was no underlying strong foundation to substantiate the premium, everybody wanted a piece of the action.

It's kind of like a good looking chick (or guy), a short-term superficial "relationship" that is over when you realize that there is nothing other than window-dressing, an ego boost, and good s*x. When you finally look a little deeper and find out there is no real substance, you lose interest. No other analogy is more apt.

You can still make money provided the PE ratio is not too high and you are prepared to hold on longterm if need be.

Never, ever buy when the price is too high. You must have heard the old saying, "Buy low, sell high." Keep telling yourself that. Know what I mean?