Overbought Market? What To Do

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Should You Invest In This Overbought Market?

Many top quality companies are looking overbought in this overall overbought market. What tells you that this is an overbought market? I use ,stock charts and look at the Dow or stock chart symbol $INDU to see where the Dow is. If the RSI is at or near the top, the $INDU at or near its' highs and the MACD near its' highs then you have 3 technical indicators that confirm that the Dow is in an overbought market.

 As a trader I like to focus on disruptive technology companies because I like their uniqueness and the possibilities of tremendous growth. I like to pick stocks when they are just beginning to rise and they make me feel that I have an edge. They give me confidence that fits my style and can make a bundle, if they work. Always trade with only the money you can afford to lose.

After Confirmation of an Overbought Market Pick Your Stock

I like to pick a stock that resembles the overbought market that I just confirmed. One that I recently 4/3/14 chose was Cisco(CSCO). It is a highly followed stock and the latest pattern seems to coincide with what the DOW is also doing, looking overbought. Its RSI indicator is starting to head down and the stock looks very toppy. Even though CSCO is a NASDQ stock it looks like its ready to fall. Since I am planning to buy a PUT option, expecting CSCO to go down further I also like to look at Sentiment. Sentiment tells me that the Put/Call ratio as of 4/5/14 is relatively low and that their are lots of analysts(16)recommending CSCO as buy .
There are relatively lots of shorts on CSCO but that's two out of three indicators telling me that CSCO has room to fall and can fall further. A squeeze may develop as call and stock owners may cut their losses. As a PUT buyer with a short time horizen I like to buy a little time so I chose the April 25th 23 strike which cost me $47 for 1 contract(35+12 commission), when the stock was aroung $23 per share. I placed the trade feeling confident that CSCO will continue to fall as the overbought market falls.
What happened to Cisco? The following Title of the article below says it all.

Cisco - All Value And No Growth:Summary Cisco recently raised $8 billion in debt to refinance its previously outstanding debt at lower interest rates, pay off dividends and finance share buybacks. The most recent blow to Cisco came from Spherix Inc., who sued the former for patent infringement. Cisco has decided to invest $1 billion in cloud computing service that will put the company in direct competition with Amazon, Google, Microsoft, HP, IBM and VMware, among others. Cisco Systems Inc. (CSCO) is a tech giant that designs, manufactures and sells IP-based products and services. The company has spread its roots across the world divided among three geographic segments: the Americas; EMEA (Europe, Middle East and Africa); and APJC (Asia Pacific, Japan and China). As of the recent quarter's report, 58% of the revenues were attributable to the Americas, 25% to EMEA and the remaining percentage to the APJC region.

More Info about CSCO earnings

After the market closes this Wednesday, May 15, CSCO is expected to report a fiscal third-quarter profit of 49 cents per share. In its last four earnings reports, the company has surpassed consensus earnings estimates every time -- but that hasn't always translated into positive price action for Cisco shares. Following two of those quarterly announcements, CSCO has turned lower on the charts, based on both one-day and one-week stock returns. Ahead of Wednesday night's announcement, analysts are overwhelmingly bullish toward Cisco Systems. The stock has garnered 21 "buy" or better ratings from brokerage firms, compared to only seven "holds" and one "strong sell." Any signs of weakness in CSCO's upcoming earnings report could trigger a round of negative notes from this optimistic group.

 

How Far Can This Overbought Market Fall?

My analysis is that since it just touched its 200 day EMA the next stop is its 50 day EMA or about at a stock price of $21.91. The option has risen as the stock has begun to fall after it initially reversed and went higher on lower volume. CSCO's downward volume has picked up so I am confident in this trade and will watch it next week to possibly take profits. Schaeffer's Daily Option Blog reports about CSCO

By selling the Cisco puts to open, the traders expect shares of the networking name to remain above $22 through the close on Thursday, April 17, when the front-month options expire. This means that the stock has about 4% in downside wiggle room, based upon its current per-share price of $22.91. However, if Cisco falls below the strike price during the next two-plus weeks, the sellers may be assigned, and on the hook to buy the shares for $22 apiece, no matter how much they're worth.

Note:I'm also experimenting with my own Google+ account just click, Google Plus Stock Tales and Tips.                     

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One stock that I currently like is Nam Tai Electronics(NTE) so I plan to look at overbought and oversold conditions on it.  Nam Tai Electronics, Inc. (NTE) -NYSE  Following 6.30 Down 0.04(0.63%) 4:01PM EDT After Hours : 7.30 Up 1.00 (15.87%) 7:39PM EDT

You don't have to take my word for it, just give your own thoughts and actions a try and see if how fast you can benefit from trading an overbought market and start increasing your own net worth.