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Old 08-02-2008, 02:31 AM
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Quote:
Originally Posted by vipetrul View Post
Thanks Houssam for the response.

I do know these indicators and they both currently show oversold.

The question I have.. is how usually stocks behave after big one day runup.
Do they usually dip a litlle in couple next days?
Do they continue climb up while loosing the steam?
Some other option?
hey vipetrul and houssam,

If i were to add something from what houssam has said, yes a techinical trader will be looking at indicators such as RSI, Stochastics to show oversold and overbought areas.
However, u should take in to consideration that these sorts of indicators, i believe are called 'lagging' indicators (take note that any type of techincial indicator has 2 common denominators because they are all plotted on the chart, which are Price and Time) because they only update them selves as soon as the time frame closes and it is recommemeded by alot of ppl that u use these indicators in line with ur orignial analysis.

In terms of the reliability of these indicators, i guess it will vary from different trader's opinion but it is my understanding that even though these indicators may show over-bought and over-sold, the inital reaction from the market may also vary.
For example as you said that ur particular stock jumped up 20% and ur indicators are showing over bought conditions, say for arguments sake it was 90, one might say it is due for a retracement however the next day it might run up again and then the indicators might show 95. Then the next day,it might plunge significantly to show that it is over sold.

In summary to all that being said, you cannot really put a time frame on when it is going to react to these overbought/oversold indicators and by how much it will retrace by but all i can say is that it is something that you can 'expect' which is why, like i said, many ppl recommend using it in line with ur analysis or other indicators.

To answer your question, usualy but not always, any significant move will have some sort of retracment or consolidation on the following day. To name a few great indicators to know the 'momemtum' of any move are the MACD, ADX.
David has a series of videos on such indicators like these.

Hope that helps,
Peter
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