What Is the RSI Indicator in 2026? Reading Overbought and Oversold Stocks

Imagine your favorite stock is like a car. The RSI, or Relative Strength Index, is essentially its speedometer, telling you how fast and strong its price movements are. Developed by J. Welles Wilder Jr. back in 1978, the RSI is a momentum oscillator that measures the speed and change of price movements, displayed as a single line oscillating between 0 and 100. It's usually calculated over the last 14 trading periods (days, weeks, or even minutes, depending on your chart settings). Think of it this way: the RSI looks at a stock's recent gains compared to its recent losses. If there have been more and larger gains, the RSI will be higher. If losses have dominated, the RSI will be lower. It's a fantastic way to get a quick visual on the underlying buying or selling pressure in a stock. For example, if a stock like NVIDIA (NVDA) has been on a tear, its RSI would likely be climbing, reflecting that strong upward momentum. Conversely, if a stock like Boeing (BA) was experiencing a downturn, its RSI would drop, showing the increasing selling pressure.

One of the most common ways investors use the RSI is to identify when a stock might be 'overbought' or 'oversold.' The traditional rule of thumb is that an RSI reading above 70 suggests a stock might be overbought, meaning its price has risen very quickly and could be due for a pullback. On the flip side, an RSI reading below 30 often indicates an oversold condition, implying the stock's price has fallen sharply and might be ripe for a rebound. For instance, in June 2026, Palantir Technologies (PLTR) was highlighted for having a notably low RSI of 27, suggesting potential oversold conditions amidst headwinds in the technology sector. Similarly, other tech giants like Microsoft (MSFT), Oracle (ORCL), and Apple (AAPL) also showed low RSI figures around the same time, pointing to a broader trend. On the other hand, stocks like Cracker Barrel (CBRL) and Newell Brands (NWL) were seen with RSI values above 72 in late June 2026, indicating they might be overbought after recent gains. It's crucial to remember, though, that these aren't direct buy or sell signals. Just because a stock is 'overbought' doesn't mean it has to fall immediately, and 'oversold' doesn't guarantee a bounce. They are clues, not commands, and are best used with other analysis.

While overbought and oversold levels are useful, one of the most powerful signals the RSI can give you is called 'divergence.' This happens when the stock's price and the RSI indicator start telling different stories, often hinting at a potential trend reversal before it happens.

There are two main types of divergence:

• Bullish Divergence: Imagine a stock's price makes a new 'lower low' – meaning it falls below its previous low point. But at the same time, the RSI makes a 'higher low' – it doesn't fall as much as it did before, or even starts to tick up. This suggests that the selling momentum is actually weakening, even though the price is still dropping. It can be an early warning sign that the downtrend is losing steam and a reversal to the upside might be coming. For example, in early 2023, WTI crude oil prices made new lows, but the RSI on the daily chart showed a higher low, which coincided with a subsequent rally.

• Bearish Divergence: This is the opposite. The stock's price makes a 'higher high' – it climbs above its previous peak. But the RSI makes a 'lower high' – it doesn't reach as high as it did before, or even starts to turn down. This indicates that the buying momentum is fading, despite the price still pushing higher. It can signal that the uptrend is getting tired and a pullback or reversal might be on the horizon. In April 2026, the semiconductor sector showed a glaring bearish divergence, with prices hitting new all-time highs while the weekly RSI was making lower highs, signaling potential trend exhaustion.

Divergence is a more advanced concept, and it's most effective when confirmed by other factors like price action or volume.

Like any tool, the RSI isn't foolproof, especially during strong, sustained trends. If a stock is in a powerful uptrend, its RSI can stay above 70 for extended periods – sometimes weeks or even months – without the price necessarily falling. Trying to 'short' (bet against) such a stock just because its RSI is high can be a costly mistake. The same goes for strong downtrends; a stock's RSI can remain below 30 for a long time as the price continues to drop.

This is why many experienced traders look at the 50-level on the RSI as a crucial midline. When the RSI consistently stays above 50, it generally indicates that bullish momentum is in control. If it consistently stays below 50, bearish momentum is dominant. This 50-level can act as a dynamic support or resistance zone. For example, a stock in an uptrend might see its RSI dip towards 50 during a brief pullback, only to bounce higher and continue its ascent. Combining RSI with other indicators like moving averages or support and resistance levels can help filter out false signals and give you a clearer picture of the market.

It's easy to mix up the Relative Strength Index (RSI) with another popular concept called 'Relative Strength' (RS), often associated with Investor's Business Daily (IBD). But they are actually quite different!

The RSI, as we've discussed, is an internal momentum indicator. It only looks at a single stock's own price history – comparing its recent gains to its recent losses to gauge its internal buying and selling pressure. It tells you about the stock's own momentum.

IBD Relative Strength, on the other hand, is an external comparison. It measures how well a stock's price performance stacks up against a broader market benchmark, typically the S&P 500, over a specific period (often 12 months). An IBD RS Rating of 80, for example, means the stock has outperformed 80% of all other stocks in their database. This is used to identify market leaders – stocks that are stronger than the overall market. So, while both have 'Relative Strength' in their name, remember: RSI is about a stock's own internal momentum, and IBD Relative Strength is about how a stock performs compared to the rest of the market.