Unfortunately, Stocks are not oversold here
Bryce Coward, CFA, Gavekal Capital
One would have thought that coming off of the worst day in the financial markets since 2008 stocks would been thoroughly oversold to such an extreme that a snap back rally would be inevitable. Unfortunately that is not the case today as our quantitative measures of oversoldness have yet to hit extremes reached at every other important inflection point in the markets over the last ten years.
A simple measure of the percent of stocks trading above their own 65-day moving average shows a reading of 29%, well above the 10-15% levels that typically coincide with important lows.
Even after Friday’s selloff, only 8% of stocks were trading at a new 65-day low. This indicator reaches extremes when 35-50% of stocks are trading at new 65-day lows.
Our 65-day moving average advance-decline line is still strongly positive at a reading of +64, but momentum is deteriorating. Emotional lows in stocks coincide with this indicator having a reading of at least -100.
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