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Oversold in an Uptrend: AOL by kensey |
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America Online Inc (AOL)     |
Even in wildly bullish markets, short-term, panicky waves of selling occur. Stochastic tells you when that short-term sell-off has reached an unsustainable level of pessimism and prices are about to resume moving in line with the longer-term trend. That is how the professionals make money: betting against short-term extremes in favor of a return to normalcy, which is the more persistent trend identified by MACD. After a steep sell-off in November, AOL went into a solid uptrend. The starting point is marked by the green MACD bar that started in early December. Now, stochastic gives us a number of excellent opportunities at which to establish a position. The first was in late January. The next occurred in early March and the last in late April. |
In all of these instances, stochastic touched the lower reference line. This means the stock was short-term oversold. However, with MACD green and solidly above center these were opportunities to get into a very strong uptrend. Buying into a stock that is short-term
oversold but in a longer-term uptrend is an
excellent way to use stochastic.
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