...overbought relating to stochastics is just technical analysis voodo mumbo jumbo...
You said it -- I didn't! <g>
Actually, I am familiar with the general principle behind stochastics (although I certainly wouldn't attempt to work out a calculation using the system). But I would contest the assumption that a stock "performs" in a certain way. A stock is not an "actor"; it is acted upon -- by investors, who "perform" in a certain way.
Two points:
1) People are wont to intone, where FA is concerned, that "the past is no predictor of the future." Why not be consistent, and say that "the past is no predictor of the future" where TA is concerned? In other words, if investors have performed in a certain way in the past, why should we assume they will continue to do so in the future?
2) My question about the "overbought" undervalued stock still stands. The purpose, I presume, of analysis methods like stochastics is to clue people in as to when to buy -- and when to sell. Presumably, then, an investor will dump an undervalued stock that is temporarily "overbought" -- even if, in the long run, the stock should (on its merits) recover and go on to still higher highs, at least until it finally reaches "fair value." So, does it make sense to sell it?
jbe |
