A number of stocks headed towards the oversold territory last week as investor sentiment turned negative following the sharp correction witnessed in the benchmark indices for six consecutive sessions. Till Friday, as many as 160 Nifty500 stocks had entered oversold zone on the Relative Strength Index (RSI).
However, as the benchmark indices opened strong on Monday, nearly half of those 160 stocks exited the oversold territory. Altogether, 71 stocks have now risen above the 30-mark on the RSI. Any stock below the 30 value on the RSI is considered 'oversold'. If these stocks manage to close in the green in today's session and continue the upside for one more session, then the weakness is said to have subsided and any correction in the indices is unlikely to obstruct these stocks' northward journey.
Moreover, as a stock exits oversold territory, the possibility of short covering increases. Volumes also assist in determining the inner strength when the stock moves above the oversold condition: higher volumes means less probability of further weakness.