Michael and other bears, here's a trick question: It sounds to me as if some of you are saying this company is overbought, so how do you know a stock is "overbought"?
For every buyer there is a seller, so the number of buyers equals the number of sellers. So if a stock is "overbought" then it is also "oversold". Are you suggesting that the volume is too high, or is this simply a fancy way of saying that the price is too high?
If, in reality, you are simply suggesting that the price is too high, then what is the proper price, and how did you arrive at it?
Now, perhaps I've got this wrong. Maybe what you are suggesting is that the price of the stock went up too quickly. If so, what is the proper rate of increase in a stock price, and how do you calculate this?
To my warped way of thinking, this constitutes a dilemma. T/A afficianados contend that past price behavior is predictive of the future, and stock prices behave like masses subject to Newtonian physics. Now the value guys contend that prices can diverge substantially from underlying "value", but that the time it takes to return a stock to proper valuation levels in indeterminate. So, it seems to me that the idea of "overbought" is inconsistent with either of those market views, and certainly has no place in MPT, so from whence comes this idea, and how do you justify it?
Regards,
Paul |
