In momentum technical analysis, what condition is traditionally indicated when the 14-period Relative Strength Index (RSI) oscillator rises above the 70 threshold?

[ A ]The stock is considered 'Oversold', indicating an immediate mandatory aggressive buy signal.

[ B ]The stock is considered 'Overbought', suggesting that recent price advances may be overextended and a consolidation or corrective pullback is possible.[ CORRECT ]

[ C ]The company's corporate earnings have grown by exactly 70% over the trailing financial year.

[ D ]The stock has zero trading liquidity on the national stock exchange.

Takeaway

An RSI reading above 70 signals that a stock is 'Overbought' — recent price gains may have run ahead of fundamentals, raising the odds of a consolidation or corrective pullback.

Derivation

RSI is a bounded momentum oscillator scaled 0-100 that compares the magnitude of recent gains to recent losses over a look-back period (typically 14 days); readings above 70 indicate that upward price momentum has been unusually strong and sustained, which historically often precedes at least a pause or partial reversal as buying pressure exhausts itself. The mirror-image reading below 30 signals 'Oversold' conditions, where selling pressure may be overextended. This 70/30 convention is a foundational technical-analysis threshold candidates are expected to know precisely, since confusing overbought with oversold (or misremembering the direction of the signal) is a very common error under exam pressure.

Why the others fail

A — The stock is considered 'Oversold', indicating an immediate mandatory aggressive buy signal.

An RSI reading above 70 signals Overbought conditions, not Oversold — Oversold is signaled by RSI dropping below the 30 threshold, the opposite end of the scale.

C — The company's corporate earnings have grown by exactly 70% over the trailing financial year.

RSI is a price-momentum oscillator derived purely from historical price movements; it has no mathematical connection to a company's reported corporate earnings growth figures.

D — The stock has zero trading liquidity on the national stock exchange.

RSI measures momentum in price action, not trading liquidity; a high RSI reading says nothing about whether a stock has zero trading volume on the exchange.