http://profitabletradingtips.com/profitable-trading-tips/trading-overbought-stocks Trading Overbought Stocks Stocks become overbought for a number of reasons. Sometimes the promise of a new product seduces investors. They forget to do technical analysis and they buy the promise without considering that the stock price may soon correct. At times the market comes to believe that a stock “will just keep going up.” Thus, investors will keep buying the stock, even at exorbitantly high price to earnings ratios. Sometimes, like recently, the market has crashed. Investors and traders are looking for something that will exhibit growth potential or at least a little price action. When there are not a lot of choices the market sometimes jumps on mediocre opportunity as the only perceived choice. Any of these scenarios will lead to over priced stocks. Almost inevitably such over priced stocks will correct. Sometimes the whole market will, after a fledgling rally. Trading overbought stocks can be very profitable when the market corrects. As the market rally pauses, and even takes a horrendous mid day dip, it is time to consider that a game plan for trading market recovery may well be finding and trading overbought stocks. It is a sad fact than many long term investors will commonly pay too much for the “promise” of forward earnings potential. A prime example is a number of hotel stocks. Occupancy numbers have risen with a number of hotel chains. Experts credit economic recovery as well as lack of new bed capacity due to the recession. Some of these stocks appear overbought with P/E rations nearing twenty at a time when it appears that the economic recovery will continue to slow. Another issue with trading overbought stocks in the hotel arena is that those with a large overseas presence seem to have rosier prospects than those with solely domestic exposure, by about a 30% better growth rate. Trading the rallies and retreats of the stock market is not limited to overbought hotel stocks. Considering that the S&P 500 remains below its year 2000 level there are a lot of stocks that are “moving sideways.” That is to say if you look at their technical analysis charts you see a flat line. If a company does not have a strong overseas presence, of fantastic new product, a strong R&D department churning out new technology and making it applicable, it may just “flat line” into the distant future. To the degree that a number of “flat line” stocks have been bid up the on general promise of market recovery they are over bought. Trading overbought stocks in virtually any market sector will take a mixture of fundamental analysis of stock prospects and technical analysis of short and medium term price direction.

1. Trading Overbought Stocks
By: www.ProfitableTradingTips.com

2. Stocks become overbought for a
number of reasons. Sometimes the
promise of a new product seduces
investors. They forget to do technical
analysis and they buy the promise
without considering that the stock
price may soon correct.
By: http://profitabletradingtips.com/profitable-trading-tips/trading-overbought-

3. At times the market comes to
believe that a stock “will just keep
going up.” Thus, investors will
keep buying the stock, even at
exorbitantly high price to earnings
ratios. Sometimes, like
recently, the market has crashed.
By: http://profitabletradingtips.com/profitable-trading-tips/trading-overbought-

4. Investors and traders are looking for
something that will exhibit growth
potential or at least a little price action.
When there are not a lot of choices
the market sometimes jumps on
mediocre opportunity as the only
perceived choice.
By: http://profitabletradingtips.com/profitable-trading-tips/trading-overbought-

5. Any of these scenarios will lead to
over priced stocks. Almost inevitably
such over priced stocks will correct.
Sometimes the whole market
will, after a fledgling rally. Trading
overbought stocks can be very
profitable when the market corrects.
By: http://profitabletradingtips.com/profitable-trading-tips/trading-overbought-

6. As the market rally pauses, and
even takes a horrendous mid day
dip, it is time to consider that a
game plan for trading market
recovery may well be finding and
trading overbought stocks.
By: http://profitabletradingtips.com/profitable-trading-tips/trading-overbought-

7. It is a sad fact than many long
term investors will commonly pay
too much for the “promise” of
forward earnings potential. A prime
example is a number of hotel
stocks.
By: http://profitabletradingtips.com/profitable-trading-tips/trading-overbought-

8. Occupancy numbers have risen
with a number of hotel chains.
Experts credit economic recovery
as well as lack of new bed
capacity due to the recession.
By: http://profitabletradingtips.com/profitable-trading-tips/trading-overbought-

9. Some of these stocks appear
overbought with P/E rations
nearing twenty at a time when it
appears that the economic
recovery will continue to slow.
By: http://profitabletradingtips.com/profitable-trading-tips/trading-overbought-

10. Another issue with trading overbought
stocks in the hotel arena is that those
with a large overseas presence seem
to have rosier prospects than those
with solely domestic exposure, by
about a 30% better growth rate.
By: http://profitabletradingtips.com/profitable-trading-tips/trading-overbought-

11. Trading the rallies and retreats of
the stock market is not limited to
overbought hotel stocks.
Considering that the S&P 500
remains below its year 2000 level
there are a lot of stocks that are
“moving sideways.”
By: http://profitabletradingtips.com/profitable-trading-tips/trading-overbought-

12. That is to say if you look at their technical
analysis charts you see a flat line. If a
company does not have a strong
overseas presence, of fantastic new
product, a strong R&D department
churning out new technology and making
it applicable, it may just “flat line” into the
distant future.
By: http://profitabletradingtips.com/profitable-trading-tips/trading-overbought-

13. To the degree that a number of “flat line”
stocks have been bid up the on general
promise of market recovery they are over
bought. Trading overbought stocks in
virtually any market sector will take a
mixture of fundamental analysis of stock
prospects and technical analysis of short
and medium term price direction.
By: http://profitabletradingtips.com/profitable-trading-tips/trading-overbought-

14. Stock market history is full of
examples of stocks that kept rising
in price due to creative
accounting, selling off assets to
give the impression of continued
good cash flow, and the like.
By: http://profitabletradingtips.com/profitable-trading-tips/trading-overbought-

15. If you are a long term investor you
may well considering picking a high
P/E ratio and sell when the stock
passes it. If you are a day trader you
will probably want to look at when the
stock starts exhibiting volatility as long
term share holders sell, passing starry
eyed new investors on the way in to
owning the stock.
By: http://profitabletradingtips.com/profitable-trading-tips/trading-overbought-

16. factors could well be profitable in
today’s market trading overbought
stocks. The point of all this is to do
you fundamental and technical
analysis before buying or selling. It will
keep you out of trouble with
overbought stocks.
By: http://profitabletradingtips.com/profitable-trading-tips/trading-overbought-