Things are getting very stretched towards the downside and the bears are having too easy a time. That is about to change if history is any guide.
The number of lows has ballooned to critical levels which usually have presaged snapback rallies. Also, Lowry’s research into the percentage of stocks above a moving average is compelling. Specifically they say:
…a number of significant buying opportunities have been identified in the past after periods of market weakness have caused the percentage of stocks above their 10-day moving averages to drop below 10%.
For further details and a historical chart of times when this has happened, see Lowry’s research. Below is a recent chart of the Standard and Poors 500 index (SPX) showing that last week we had just slightly over 90% of the components of the bellwether index trade below their short term, 10 day moving average:
If you look closely you’ll notice just peeking below the speech bubble on the graph that in mid-August we had a similar situation which corresponds to the intermediate lows we saw then.
Source: Stephen Whiteside at theuptrend.com
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