The stock market has had a good recovery. Now is the time for the astute trader to be ready for corrections in individual stocks which are now over priced stocks. Market psychology is taking hold again. It appears that the recession is bottoming out and money is coming back into the stock market. However, much investing is not in well chosen individual stocks but in broader groups. Not all of the individual stocks that have run up with the herd will maintain their prices and are ready for corrections.

If everyone bought and sold at the “correct” prices there would be no place for traders. However, individual stock prices fluctuate based upon daily and hourly assessments of where an individual stock’s price might be heading in the near and long term future. It is the trader’s life to pick up on these moves or, better, anticipate them. When a large move with lots of volume takes place the successful trader scalps a little along the way.

In the world of the trader as in all endeavors being prepared is best. With the recent move in the US stock markets lots of individual stocks have moved up. There are, however, overpriced stocks that have ridden up with the wave and are ready for corrections.

With the expectation that the recession will correct itself over the next year or so investors are buying into companies in areas that will benefit from an acceleration of the world’s economies.

Mining stocks have gone up. So have a lot of on line schools and companies that make training software. The problem is that not every individual stock is in a well run company. Some still have shaky balance sheets and are now over priced stocks, ready for corrections. With mining stocks there is always the problem of environmental damage and a shutdown of operations. When everyone has bought in anticipation of more orders a closed mine is a disaster and, certainly, represents an overpriced stock.

The same applies to software companies and online schools. Even if they have exceptional products they need customers and if their customers are not ready to buy then these individual stocks represent over priced stocks, ready for correction.

You can sell call options on these stocks, waiting for their decline or you can straddle by buying and selling call options at the same price in case the individual stocks run up a bit more. You can also wait for the market to move and scalp on the way down.

For companies that have good balance sheets and exceptional products but are waiting for customers you can profit both directions. These companies currently represent overpriced stocks, ready for corrections. Thus their prices may correct and if you are ready you will profit. However, once they have declined, orders may come in and then these individual stocks will no longer be overpriced stocks and you should be ready for a price surge, having bought call options or being ready to scalp on the way up.

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