Intel Corporation (NASDAQ:INTC) shares are consolidating on Friday. They have gained more than 14% over the past three days. But they are overbought. This means they have a good chance of reversing, which is why Intel is the Stock of the Day.

Many trading strategies and models are based on the concept of mean reversion. If a stock gets overextended, it has a good chance of reversing.

If emotional and aggressive sellers push a stock below its normal or typical trading range, traders will say it is ‘oversold’. This will draw buyers into the market. They anticipate a reversion or a move higher.

Their buying could push the shares into an uptrend.

The opposite of oversold is ‘overbought’. This occurs when aggressive, emotional buyers push the price above its typical or normal range.

This will draw sellers into the market. They anticipate a reversion or a move lower. Their selling could put pressure on the shares.

Intel is Currently Overbought

The red line on the chart below is called a Bollinger Band. Traders use it to determine whether a stock is overbought or oversold.

The band on the chart is two standard deviations above the 20-day moving average. According to statistics and probability theory, 95% of all trading should occur within two standard deviations of the mean.

If a stock exceeds this threshold, as Intel has, it is considered to be overbought.

Another tool traders use to determine if shares are overbought or oversold is on the lower part of the chart. It is called the Relative Strength Index (RSI).

If the blue line is above the horizontal red line, like it is now, it indicates overbought conditions.

The overbought conditions in Intel will draw sellers into the market. These sellers could force the shares lower.

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