Should “overbought” And “oversold” Really Be “underbought” And “undersold”?
I have heard people refer to the market being “overbought” or “oversold” for as long as I have been a student of the markets. To be sure, only one of the two terms has any credibility and that is oversold. While it is possible it is unlikely since the only consideration that a market would really be oversold in is when the cost of a share is zero. Undeniably that would be an oversold market! That can be contrasted when we consider the term overbought, because in reality the sky is the limit for how high any given stock could potentially rise. Because a stock could never reach a price of infinity it can’t really happen. So there is no such thing as overbought at all. A lot of types of stock platforms try to tell you the opposite.
To give people credit, I know what they are talking about when they use these terms, they are just thinking relatively. When they say “overbought” they really just mean that the market is higher than before, and they think it won’t go any higher. Conversely when they say oversold, they mean that the market is lower than before and they think the market will go higher. That’s why I decided to coin a couple new terms, to put a new perspective on the whole thing. This is really quite exciting. A revolutionary new concept. My new terms (and feel free to use them widely to get the buzz going) are “Underbought” and “Undersold”. They get tossed around a fair bit places like eminiforecaster.
So what is this “Underbought”? Quite simply, it is when the market has not raised enough to be where it will be in the future. Alternatively “undersold” means that the market has not gone down as much as it will in the future. It’s easy to see when you think about it how theses terms can replace and be a more appropriate alternative to “overbought” and “oversold”.
My goal is to move people away from looking back at the past to display where markets will go in the future. Let’s get over it and move on. The fact is the most successful investors in the world are forward looking market participants. They look for where the trend of the market is heading. They are forward looking investors.
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