Seeking a definition of oversold? ovebought?
Macavity,
Your post had me thinking so I went off to seek more definitions of oversold. As you can expect, a wide range of definitions was found.
stockcharts.com
Stockcharts definition: Oversold is a technical condition that occurs when prices are considered too low and ripe for a rally. Oversold conditions can be classified by analyzing the chart pattern or with indicators such as the Stochastic Oscillator and Relative Strength Index (RSI). A sharp decline from 30 to 15 in 2 weeks might lead a technician to believe that a security is oversold. Or, a security is sometimes dips below 20 and when the Relative Strength Index (RSI) declines below 30.
moneycentral.msn.com
MSN definition: A condition where it appears a stock has declined to the point where the selling is over and buyers will likely step in and push the stock higher.
[mw: gee, that's helpful, thanks Microsoft! lol!]
While doing a little research, came across this interesting comment on Nasdaq volume.
thestreet.com
TheStreet.com: But even if we look at the relationship of upside volume to downside volume in that market, it shows that ever since the first Fed easing in early January, the percentage of upside volume relative to total volume on the Nasdaq has been declining. That is not exactly what we want to see.
Helene goes on to note:
Over on the NYSE, where they have been counting volume the same way for ages, it's easier to see the slow decline in volume we've been seeing since early January's Fed ease. This is all part of the churning we're experiencing -- and what happens when there is very little trend in place.
An excellent comment, since few writers on the subject of oversold, overbought ever seem to talk about volume or where price is relative to where it has been.
investorlinks.com
Market Trend Realities: With the markets "generally" oversold, this does not preclude a rally from beginning at any time now. We must point out that while we think this will happen potentially beginning immediately, the term oversold will have a much different meaning in a bear market than what investors, traders and speculators have come to understand as a buying opportunity during the bull market. If the primary trend is truly down, as we see it by definition, oversold bounces should be very sharp as was the case during the bull market, but they should also be much more relatively short lived too, trapping the unsuspecting who had hoped they were buying into the next rally to another bull market high.
That last comment is certainly one I can identify with, since it shows that the writer understands the market dynamics (trapped buyers) which is so important.
csf.colorado.edu
From a list server in 1998: There is however a "formal" definition of "oversold" and "underpriced." Traders
mean by that term when the market has gone below or above a moving average. But I
don't think there is any consensus on how long that moving average should be.
[mw: was hoping to discover the 'official' source of the "formal" definition but failed.]
So in this 5 minute review I was unable to turn up anything definitive, at least not on the net. I'll turn to some printed text - both those that I like and those that I don't - and see what we can find there.
My suspicions are that we will find plenty of discussion that is very 'indicator' centric:
rightline.net Indicators used in technical analysis to identify overbought or oversold conditions.
ptti.com a stochastic is an oscillator used to determine whether a market is overbought or oversold [mw: but no definition of what overold or overbought really mean, just a hint that the oscillator moves to a particular value and that is all...]
just some thinking here. |
