What does oversold mean? By oversold, I mean a condition where there has been enough selling pressure to drive prices down to low enough levels which overextended or excessive on a short-term basis, suggesting the downtrend could be an overreaction. When price trends overreact in the short-term by moving potentially too far, too fast, the trend becomes likely to reverse back up, at least temporarily. Afterward a countertrend back up, however, a short-term oversold trend may later reverse down again in continuation of a downtrend. So, observing a short-term oversold condition may not result in a long-term trend reversal up, but instead, my increase the odds of a short-term retracement. In the chart below of the energy sector index, we see an overall downtrend since the price on the left side is higher than the right a year later, however, we also observe the price swings along the way, which are shorter-term overbought/oversold countertrends.
SHELL CAPITAL MANAGEMENT, LLC is the investment manager of ASYMMETRY® Managed Portfolios. This is for informational purposes only, not advice to buy or sell any security. Securities reflected are not intended to represent any client holdings or advice from the firm. Past performance does not guarantee future results. Investing involves risks including possible loss of principal an investor must be willing to bear. Data provided is deemed reliable but is not guaranteed.
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