Looking at the Nasdaq advance decline numbers, I noticed that we are at a very deep oversold level here. It basically confirms what I outlined yesterday through other indicators.
I look at the 5 day simple moving average of the Nasdaq breadth numbers because I want something very short term and 5 is also the number of trading days in an average week. So the chart shows a rolling average of a week’s worth of trading (see below).
According to this measure of Nasdaq breadth, we are just a little bit better than the late February 2007 bottom. And to beat that exterme, you’d have to go back to the panic bottom formed after the September 11 attacks in 2001.
The NYSE advance decline numbers are even more stretched to the downside because it contains a lot of interest rate sensitive issues which have been getting obliterated. The 5 day moving average of the NYSE breadth in fact is almost as low as it was on 9/11.
So the probability that we are about to witness a bounce here is very high.
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