Rivian Automotive, Inc (NASDAQ:RIVN) opened over 2% lower on Tuesday in consolidation after a skyrocketing rise, which has taken place over the last month but accelerated starting in July, when the company reported second-quarter delivery numbers.

The 86% surge, which began on June 27, caused Rivian’s relative strength index (RSI) to reach 86% on Monday, which indicated a retracement to the downside was the most likely scenario.

RSI is an indicator technical traders use to measure bullish and bearish price momentum. RSI levels can range between zero and 100, with levels between 30 and 70 generally considered to be healthy.

When a stock’s RSI falls below the 30% level, it's considered to be oversold. When a stock enters oversold territory, it indicates the securities price no longer reflects the asset's true value, which can signal a reversal to the upside is in the cards.

When a stock’s RSI rises above the 70% area, it is considered to be overbought. When a stock enters overbought territory, it signals the securities price is elevated to its intrinsic value, which can signal a reversal to the downside is on the horizon.

RSI is best used when combined with other signals and patterns on a stock chart because stocks can remain in oversold and overbought territory for an extended period of time before reversing.

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The Rivian Chart: Rivian’s consolidation on Tuesday was taking shape in the form of an inside bar pattern, with the price action taking place within Monday’s trading range. The move was on lower-than-average volume, which confirms the inside bar pattern and was helping to drop the stock’s RSI.

Photo courtesy of Rivian.