When applied to a market
the term "oversold" means that
the market is far from satisfied, and that there are fewer items for sale than buyers.
For example, during various gift-giving holidays,
stores are often oversold on some items because of missed projections of consumer demand.
The result is not enough of the items to be sold to
buyers, representing a missed opportunity for the sellers.
Sometimes a market will oscillate between overbought and oversold. This happens often in a stock
In a stock market, a stock is oversold when its selling
price reaches a bottom indicating that sellers have been willing to sell, while the buyers have not been buying--thereby driving the price down.
At the bottom the stock is considered oversold, and
buyer interest picks up as
buyers to buy the stock at what they believe to be a bargain price. This typically continues, until the stock becomes overbought
which starts a new trend of downward prices.
There are a variety of technical analysis indicators used by stock traders to identify oversold conditions.