Editor's Note: This is a bonus story from Gary B. Smith, whose commentary usually appears only on
RealMoney
. We're offering it today to
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RealMoney. This story originally appeared on RealMoney on July 12 at 8:35 a.m. EDT.
Over the years, one question I get asked regularly is how I define
overbought
(and similarly,
oversold
).
There are many oscillators, of course, that can measure such things -- stochastics, MACD, etc. -- but for better or worse, my analysis is based on gut feel.
However, that gut feel does encompass a few key elements.
The stock has been up for a few days in a row, and/or
The move looks vertical in nature, and/or
The percentage gain of the recent move looks unsustainable.
Let's use
IBM
(IBM) - Get Report
as a recent example.
You can see by the chart below that all three elements are in play. The stock rose straight up for the past week, and while it certainly could continue rising, the pattern looks a little "stretched." Or, in column speak, IBM is overbought.
Today, the
Dow Jones Industrial Average
,
Transaction Systems Architects
( TSAI),
Oregon Steel Mills
( OS),
Dobson Communications
(DCEL)
,
Sirius Satellite Radio
(SIRI) - Get Report
and
Semiconductor HOLDRs
(SMH) - Get Report
.
Charts produced by TC2000, which is a registered trademark of
Worden Brothers Inc.
And that is the final word from the Cinema Royale, where I know why ticket sales are lagging: I haven't been going to the movies! Let's see, I've wanted to go to
Star Wars
,
Cinderella Man
,
Mr. & Mrs. Smith
,
War of the Worlds
and
Fantastic Four
. Missed 'em all. But pay-per-view should be good in the next few months.
Gary B. Smith is a freelance writer who trades for his own account from his Maryland home using technical analysis. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.
Smith writes a daily technical analysis column for RealMoney.com and also produces a daily premium product for TheStreet.com called The Chartman's Top Stocks --
click here for a free two-week trial. While Gary cannot provide investment advice or recommendations, he appreciates your feedback;
to send him an email.
