Adam Dyer what I did was to consider both (ON SALE and SOLD). The reason is that, in my mind, ON SALE listings should be a good indicator to understand how easily i could buy (theoretically, more the sellers, better the chances), while SOLD listings are supposed to inform me about how easy it could be for me to find buyers (in this case, more the buyers, better the chances). That said, due to the fact that the selling part seems to be the most challenging one in the business, my preferences went to those Counties where the SOLD listings were higher than the ON SALE ones.
Competition: reading around I essentially see 2 different approaches used by experienced investors. Some is chasing areas that are not top ones (according, for example, to the demographics) in order to be able to work in a less competitive market (example: David Van), others are simply not afraid of competition at all, on the contrary they consider it a an indicator of a good market (example Mike Ferreira). So I don't think there is a general rule and yes, I have your same doubt and I just decided to go where the deals are but only experience will tell me if this approach was good enough :).