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When is Stock Overbought and Oversold?
Oscar Pyngrope, Student (MBA), India
WHEN IS STOCK OVERBOUGHT?
"Overbought" refers to a condition in which the demand for a certain asset unjustifiably pushes the price of an underlying asset to rise to such a degree that it does not support the fundamentals. This is generally interpreted as a sign that the security is (becoming) overvalued and as a bearish indicator which represents a selling opportunity for investors. During the oversold condition the security is overvalued and may experience a pullback.
WHEN IS STOCK OVERSOLD?
"Oversold" is a situation in which the price of an underlying asset has fallen to a level below its intrinsic value. This is generally interpreted as a sign that the price of the security is (becoming) undervalued and is viewed as a bullish indicator which represents a buying opportunity for investors. The oversold condition is usually a result of market overreaction to bad news or panic selling.
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