Trading in BlackBerry Limited (BB) is quiet on Friday, but the stock has been anything but quiet lately. The shares have gained more than 200% in just two months. That kind of move catches everyone's attention.
But here's the thing: BlackBerry is now extremely overbought. Many traders are anticipating a reversal. That's why it's our Stock of the Day.
Let's break down what's happening.
Most of the time, a stock trades within its typical range. When it's moving sideways, it's in equilibrium. Unless news breaks, there probably won't be any big moves. But when a stock is out of equilibrium—like BlackBerry is now—it can create profit opportunities.
BlackBerry is overbought, meaning it's trading above its usual range. That tends to draw sellers into the market. They're betting on a reversal, a move lower. And their selling can put downward pressure on the stock.
Traders have several tools to spot overbought conditions. Three popular ones are the Relative Strength Index (RSI), Stochastics, and the Commodity Channel Index (CCI). They all appear on the lower part of the chart, and they all look pretty similar.
Newer traders sometimes fall into the trap of using too many indicators. They think more is better. But veteran traders know these indicators are just different ways of measuring the same thing. They pick a couple, master them, and keep it simple.
Right now, all three indicators are flashing overbought for BlackBerry. There's no need to look at all of them—the message is clear.
When stocks get this overbought, savvy traders anticipate a reversal. But they don't try to catch the exact top. That's nearly impossible. Instead, they wait for the reversal to actually start before taking a position. That puts the odds in their favor.
Regardless of which indicator you use, BlackBerry is very overbought and may be on the verge of a reversal. The question isn't if it will reverse, but when.
