What is the significance of the Caution sign?

In short, the caution sign (yield) indicates that the symbol is “overbought”.  It’s a technical phenomenon versus an opinion.  It means that the price of the security is not justified by the fundamentals and at the same time, has reached the upper limits of the technical indicator used.


BuySelliQ uses RSI —relative strength index (which differs from Relative Strength). Indicators oscillate between 0 & 100 and when a stock price moves to the upper bands of the RSI, it is considered a warning that the price of the security is no longer justified by the fundamentals. Two possible situations will emerge: (1) a strong stock (meaning it’s in demand) can remain overbought for weeks or longer as the price continues to move higher or simply stalls without necessarily selling off (yet). IF or when the price moves to a new high, the risk to new buyers increases because eventually the price will reverse until it’s no longer outside the RSI “normal” range. (2) the second possibility is that shortly after a stock is overbought, based on the RSI parameters, the sell-off or reversal to mean, takes place.

What should investors do when a stock (or ETF) reaches the overbought stage? Keep the following in mind: (a) there is no way to determine how long a stock will remain overbought which is another way of saying that it’s NOT a sell signal; just information (b) the risk has increased (c) if you already own the security it should be held until a trend change has been identified (RED dot) (d) if you do not own the security, the prudent investor would wait for a pull back before buying and (e) just as there is no way to determine how long a security will remain overbought, there is also no way to determine the extent of the decline.

The bottom line: a prudent investor will assess their risk tolerance and recognize that risk has increased when a security is overbought.


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