When one says that we are "oversold", how do we observe this?
oscillators, mainly -- are you familiar with these indicators?
here's the CCI:
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*10-day hourly scale*
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if you are not familiar, here are the basics, in brief:
oscillators roughly measure the 'momentum' of price. below the zero line is bearish (negative momentum), above is bullish. bounds which are calibrated to each unique formula are drawn to demonstrate periods of overbuying and overselling. notice how peaks in overbuying are often followed by market corrections, where the more severe the correction, the lower the oscillator drops? this allows for the use of trendlines to determine reversals. the last major correction before the crash found clear support on the zero-line -- a very bullish sign -- anticipating the next peak.
now for my annotations, and your question:
large blue spike says 'short-term oversold'. much red during the run-up could mean 'mid-term overbought', which is why many fear a downward correction at this point.
however, the zero-line crossover and then support during the consolidation is very bullish, as is the beak into the 'overbought' zone. (
entering the overbought zone is bullish, leaving is bearish -- and vice versa for oversold).
hope this satisfies your question.
--arepo
