Aug. 30, 1999
Because I've received so many questions of late on the overbought/oversold oscillator, I'll take some time to further explain this indicator.
Overbought and oversold are momentum indicators. A truly strong (or weak) market will get overbought (or oversold) and stay that way. One of the reasons we have not had a sustained overbought or oversold reading in 1999 (and have simply bounced back and forth) has been because, for the most part, the market has been rather trendless. Each time it has reached a new high, it's backed off. At the same time, each downdraft has found support and rallied.
My experience has been that when we get an extreme oversold reading such as we got on Aug. 10, we'll bounce from that level and then come down again. It is that next leg down that tells us what sort of momentum we have on the downside. In this case, it's my belief that this leg down will not take us to a greater oversold (i.e., we will see a higher low in the indicator), which shows that downside momentum is slowing.
One of the reasons I believe this has to do with the shrinking number of stocks making new lows. For the first time since April, this number is not expanding on down days. This indicator tells us the selling pressure in individual stocks is not as great as it had been. That is where the underlying improvement is.
New Highs and New Lows
Cumulative Advance/Decline Line
Helene Meisler, based in Singapore, writes a technical analysis column on the U.S. equity markets on Tuesdays and Fridays, and updates her charts daily on TheStreet.com. Meisler trained at several Wall Street firms, including Goldman Sachs and Cowen, and has worked with the equity trading department at Cargill. At time of publication, she held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. She appreciates your feedback at