IS THE MARKET OVERSOLD AND WILL WE GET A BOUNCE AFTER THE JULY 4TH WEEKEND?
The July 4 weekend is almost here and with it comes a 3 day holiday during which time the stock market will be closed. The last two weeks have seen a big sell off, so much so that many analysts are saying it has been oversold. In fact, the market has been going down steadily much of May and June as you can see in the chart below.
When the stock market is oversold it means that more selling has taken place than the situation warrants. I have spoken many times that the market trades on emotion and when people are in a selling mood, stocks can get oversold. People want out of stocks for personal reasons (usually they are nervous) and that promts them to sell even if their stocks are at a reasonable price when you look at the fundamentals.
An oversold market means that at some point, people are going to come in and buy. This will cause a bounce up that can be either temporary or last longer. When you put things on sale (in this case stocks), people will sooner or later decide they need to take advantage of the low prices.
Oversold markets or stocks can happen in two ways: over a long period of time or very quickly. The market can go down over a long period of time (months and years) and at some point people will jump in because they think it is too low. Bargain prices are what folks are always looking for and they look for them in stocks too.
An oversold situation can take place over mere days as well. This last week of June has seen the market go down about 500 points and that is what is leading experts to say that too much selling has occurred. When the stock market goes down very quickly, it is often because of fear that people are selling. Fear can cause people to sell even though a stock may be a good solid holding.
If you are interested in buying stocks for the first time, an oversold market may be a good time to buy. I am NOT RECOMMENDING anyone buy stock now or next week. I am not a professional and when and how to buy stocks is for you to decide. I am merely explaining what it means when the market is oversold and that we may get a bounce early next week after people come back from their July 4th holiday.
