NISM Certifications · NISM-Series-XV: Research Analyst · Technical Analysis
The Relative Strength Index (RSI) of a stock rises to 82 while the price makes a new high, and it is conventionally read using the 70/30 thresholds. How is this reading generally interpreted?
An RSI of 82 is above the conventional 70 threshold, so the stock is considered overbought. This warns that the advance may be stretched and a pullback is possible, though strong trends can remain overbought for some time.
- AThe stock is in the oversold zone and a buy signal arises
- BThe stock is in the overbought zone, warranting caution about a pullbackCorrect
- CThe stock has no trend as RSI is above 50
- DThe stock's volume is declining
Explanation
RSI above 70 is conventionally regarded as overbought, suggesting the rally may be overextended and a correction possible. Oversold is below 30. RSI above 50 indicates bullish momentum, not absence of trend, and RSI does not measure volume.
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