Overbought

A label applied to a reading, not a verdict on a price. When a bounded oscillator passes an upper threshold, the calculation is reporting that recent closes are concentrated near the top of their own recent range. The threshold is a convention set by whoever published the method, most familiarly the upper level on the relative strength index, and other authors use other levels for the same indicator.

Nothing in the calculation knows what anything is worth. No earnings figure, no interest rate and no valuation enters it; the inputs are prices from a lookback window and nothing else. A market at an all time high with sustained buying behind it reads overbought for precisely the reason it is rising, and so does a market recovering quickly from a fall, which is why the word cannot be read as expensive.

The trip is treating the reading as a signal in itself. In a strong trend a bounded oscillator stays pinned near its extreme for long stretches, so a convention that expects a reversal on a threshold crossing fails in exactly the conditions that generate the reading most often. Published treatments differ on the response: some pair the reading with a separate trend measure, some count only a return out of the zone rather than an entry into it, and some treat the label as descriptive only. Those conventions conflict with one another and the disagreement has not resolved.