Much has been made of the observation that the current stock market is ‘oversold’. What does that mean? Better yet, why do we care?
Oversold and it’s diametrical opposite overbought are technical terms, technical in the manner of chartist jargon, not really technical at all, almost the opposite. We get oversold when stocks have been sold for day after day after day. So, what does that mean?
On any given day, even on extreme days, some stocks go up, others go down. One stock’s meat is another stock’s poison. Even on Black Monday back in 1987 there were numerous stocks that rose that day, there were even new highs (mostly gold shares and closed-end bond funds). But, when more stocks get sold than bought every day, day after day, we can get oversold. We have always considered it more a breadth thing than a price thing, but there are several definitions of oversold. Read more