The herd isn’t rational. It never has been. It never will be.
It’s driven by extreme forces of fear and greed. Stocks get too high because of it. Stocks get crushed because of it, too.
But if you can spot the extremes, you put yourself ahead of the game.
Look at Finish Line (FINL), for example. In December 2014, it was crushed on earnings, gapping from a high of $29 to less than $23 in no time at all.
If we look at RSI, MACD and MFI, though, we can see that it’s still over-extended, likely to move higher than it has in recent days.
MFI is now sitting at its 20-line. Each time the stock gets that low on MFI, we see a respectable rally. RSI is at its 30-line where we see rallies, too. Even MACD has extended to a prior low.
The last time MACD was this low, the stock rallied shortly after from $24.40 to $29.
Despite a recent move higher in the stock, I believe FINL could refill the latest bearish gap at $29.
Consider buying to open the FINL May 2015 25 call up to $2.20.
