An asset is described as oversold when a momentum oscillator falls to a low threshold — RSI below 30 is the most widely cited. The reading suggests that sellers have driven price down faster than can be sustained, creating conditions where a relief rally or full reversal is more probable.
As with overbought readings, the label does not guarantee an immediate bounce. During severe bear markets and panic-driven selloffs, assets can remain oversold for weeks or months. The RSI staying below 30 while price continues to fall is a common feature of genuine bear markets, not just brief corrections.
Where oversold readings carry more weight: when the broader market is in an established uptrend and a specific stock or sector oversells on a temporary shock; when the oversold reading is accompanied by extreme fear sentiment readings; and when volume dries up at the low (indicating exhausted sellers). These combinations raise the signal quality relative to the raw oscillator reading alone.