To The Moon

"More than 90% of all stocks are in bear modes. This is an unusual condition. I went back to 2006 (almost 4000 trading days) and could only find 26 examples of such uniform bearishness."

Remember: When disaster strikers, the time to prepare has passed.- Setven Cyros

One of the most frustrating and difficult parts of the market is as we are getting overbought or oversold. Why is it so difficult? Because that's usually when the market looks the worst or the best.

Source from HELENE MEISLER, writer of the daily technical analysis column and TheStreet Top Stocks. She pointed out on Sept 27: "Monday Nasdaq had about 200 fewer stocks making new lows than Friday."And We're in the last week of a crummy quarter, and, you might ask, could that push out the oversold condition until next week? Sure. But when the S&P 500 has been red for five-straight days and hasn't gone to six since late February 2020, you're asking for an outlier.

The McClellan Summation Index from down to up (+7000 advancers minus decliners on the New York Stock Exchange) shows oversold too.

The $S&P 500(.SPX)$ , $DJIA(.DJI)$ ,$NASDAQ(.IXIC)$ ,$iShares Russell 2000 ETF(IWM)$ YTD Performances are as follow.

Did broadly oversold lead to trading opportunity?

The U.S. stock market is dramatically oversold, with very negative breadth.

By Brett Steenbarger, Ph.D. Author of The Psychology of Trading (Wiley, 2003), Enhancing Trader Performance (Wiley, 2006), The Daily Trading Coach (Wiley, 2009), Trading Psychology 2.0 (Wiley, 2015), and Radical Renewal (2019) with an interest in using historical patterns in markets to find a trading edge.

One way of capturing that is to look at the percentage of stocks in the SPX that are trading above their 3, 5, 10, 20, and 50-day moving averages.

That percentage, in each case, is below 10.

More than 90% of all stocks are in bear modes. This is an unusual condition.

I went back to 2006 (almost 4000 trading days) and could only find 26 examples of such uniform bearishness.

The occasions tended to cluster: eight of them occurred in the latter part of 2008; five of them in the February-March period of 2020; four of them in May and June of 2010.

Twenty days later, the market was up 17 times, down 9 for an average gain of +2.42%. That compares with an average 20-day gain of +.67% for all other occasions.

The average gain for the oversold markets was even greater when looking 50 days out: +8.20% versus +1.98%, with 21 occasions up, 5 down.

That did not mean that we rose in a straight line.

Twenty of the 26 occasions posted a lower close within a ten-day period; 15 of those 20 occasions dropped more than 2%.

The occasions in September and October, 2008 and the 2020 occasions were especially problematic, dropping another double-digit amount before stabilizing.

We've all heard about the person who couldn't swim and who jumped into the water because it averaged only 4 feet in depth.

Averages, in themselves, don't tell us about the variability around those averages.

What we've seen after broadly oversold markets is average gains on an intermediate-term basis, but significant variability in the short-term and further weakness on some occasions further out.