Tuesday, October 9, 2007

A reader Asks:

"How do you tell when something is going to stall and when it looks like it's going to keep going?" He was talking about how he thought the stocks i liked looked like they very extended. AAPL, GOOG, RIMM, BIDY, DRYS.

Here's is what I answered:

yes, no doubt they are 'extended' and 'overbought' but things can and usually do stay over bought for a long time and vice versa, stocks can and usually stay oversold for a lot longer than 'rational' minds believe too. Markets are irrational and if you want to profit you have to be a 'neutral observer' who places trades according to what you see and not what you 'think' or 'want' to happen.
Issac Newton said:
"The rate of change of momentum of a body is proportional to the resultant force acting on the body and is in the same direction."
To me, as a trader i interpret that as once a stock gets going and starts to breakout(if you have a good supportive mrkt of course), the trend will usually get stronger and stronger as more traders start to believe in the trend and usually a stock will attract more and more volume and as greed grows and trader anxiety increases, the stocks movement will become more and more irrational until we see a trend exhaustion and buying capitulation and the eventual trend reversal. But right now, i am not seeing that stage in any of the above mentioned stocks yet. Hope that helps you.

If you watch the Dave Landry Videos I just put up, it give you a good idea about how Trends work.

1 comment:

Prospectus said...

Thanks for the answer and the videos, Stewie. :)

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