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When it is used as an oscillator, a positive value indicates an overbought market while a negative value indicates an oversold market.
A large positive risk-reversal number implies an overbought situation, while a large negative risk-reversal number implies an oversold situation.
In any extreme situation investors forget to be selective, and this is common to overbought and oversold markets.
In our last publicly posted research note we made the case for a sharp rally in crude oil off the $40 lows on the grounds that it was oversold relative to the price of gold and that traders were overly bearish.
I am continuing my search for undervalued or oversold quality stocks and have been watching Rio Tinto.
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