Trader’s Narrative

What a trouncing for the bulls today! It was just relentless selling. Red everywhere. A beautiful stairstepping down in price, almost without pause. But if you watched the Tony Oz video I put up, I don’t think you would have been caught on the wrong side today. Lets step back and look at the market from a different perspective.

I mentioned the concept of percentage of stocks above a moving average when I wrote about Lowry’s latest research report. The chart below is simply the ratio of two such measures. You take the percentage of S&P500 stocks above their 50 day moving average and you divide by the same which are above their 200 day moving average.

A spike almost always points to an oversold market. But - and this is a big but! - not in a short term time frame. As I mentioned in the Lowry’s research comment, you have to take a longer time horizon. Weeks, if not months. The challenge at this juncture in the market is that the percentage of stocks above the longe term moving average are still quite high. Even the number above the 50 day moving average hasn’t reach 20% (yet).

Ideally, we would like to see a complete washout with relatively few stocks above both medium and long term moving averages. If moves like todays continue, that won’t take long.