The Commodity Channel Index, also known as the CCI, is an excellent oscillator that can help traders identify whether a stock is oversold or overbought.

The Commodity Channel Index appears to be most effective on weekly and daily charts. The CCI oscillates between -100 and +100. Some charting programs depict this range as -200 & +200. Either way, a reading above +100 (or +200) shows us that the stock we are watching is probably overbought. If, on the other hand, the Commodity Channel Index falls below -100 (or -200) then the oscillator is suggesting that the stock is probably oversold. In other words, an overold reading is telling us that more shares have been sold recently then have been bought. The reverse is true for an overbought reading.

If the Commodity Channel Index for an uptrending daily chart is suggesting that a stock is oversold, you now have one more reason to be bullish on the stock. If, on the other hand, the Commodity Channel Index on an uptrending daily chart suggests that a stock is overbought, you should think strongly about holding off on going long the stock because it's probably preparing to pull back. Remember, a pullback could easily bring you a better entrance that carries less risk.