oversold

Oversold is a term used in finance to describe a market condition in which a security's price has fallen sharply due to heavy selling, such that it is considered temporarily undervalued by some traders. The idea is that excessive pessimism has driven the price below its near-term fair value, creating potential for a rebound. In technical analysis, oversold conditions are commonly signaled by indicators such as the Relative Strength Index (RSI) dropping below 30 or the stochastic oscillator reaching the lower end of its range. However, a reading that shows oversold does not guarantee an upturn; prices can continue to fall if underlying fundamentals deteriorate or sentiment remains negative.

Practically, analysts also consider volume, price patterns, support levels, and macro news before acting. Oversold conditions can persist in a downtrend, and some traders await confirmation of a reversal through a sustained price bounce, a positive divergence in indicators, or signs of improving fundamentals.

The term oversold is also used outside finance. In inventory or order management, it describes a situation in which more orders are accepted than available stock, leading to backorders, cancellations, or expedited replenishment. In travel and retail, oversold situations can occur when demand exceeds capacity, such as an airline overbooking flights. Effective management uses demand forecasting, safety stock, capacity planning, and supplier lead times to minimize the risk and consequences of overselling.

Related concepts include overbought conditions and undervalued assets.