An Over-Bought Market Condition

by | Feb 28, 2012 | Videos, Stock Market Comments

Over-Bought Market Condition:

What does an “over-bought” or “over-sold” stock market mean?, or asked another way, managing your investments can be a full-time job.

Here at Mullooly Asset Management, we use terms like “over-bought” and “over-sold” in regards to the stock market frequently. But today we’ll use a term you’ve probably not heard since statistics class: the bell curve, to explain what over-bought and over-sold conditions mean — and what an over-bought (or over-sold) market can look like.

There are TWO ways an over-bought market can correct:
1. The market can pull-back enough to off-set the condition. We won’t predict what will happen, and all markets are different, but when the market is bullishly constructed (as it is now), pull backs can be three, four or maybe five or six percent. In the last few years, we have seen three percents moves over a few DAYS. Yes, it can be that quick! In fact, when the market was in a bullish phase from March 2003 through the end of 2007, there was a single pull back of more than ten percent.

2. The market can “tread water” for a few weeks and not go anywhere. This event tends to “re-set” the ten week trading bands and “works off” the over-bought conditions that may exist. This “pause that refreshes” usually sets the stage for another big move up in a bullishly constructed market.

A third option also exists: the market could continue to move higher, which continues to increase the over-bought condition. Unhealthy and Risky.

In this video, we examine the current conditions of the NASDAQ 100 Index (QQQ), Apple (AAPL) and John Deere (DE). Take a look at the video below.

I would also add the following: Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment or investment strategy will be profitable or equal to past performance levels.

All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions, or withdrawals may materially alter the performance of your portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for an investor’s portfolio.


If you are relying on a blog post for specific investment advice, you are making a huge mistake. Please speak with an investment adviser before making ANY investment decisions.
If you do not have an investment adviser, we encourage you to contact Mullooly Asset Management at 732-223-9000, or through our website. Under no circumstances should the content discussed here to be considered specific investment advice.

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