Oversold Market Pushed into a Deeper State of Weakness
An ugly day for bulls pushed what was already an oversold market into deeper state of weakness.
Short term traders will be looking for a bounce as markets speed their way to August/September lows. One index has already surpassed these levels. The Russell 2000 (NYSEARCA:IWM) is in the 90% zone of historic weak prices going back to 1987 and is well beyond September lows.
The S&P (NYSEARCA:SPY) has only see one day of gain for the last seven days of trading. While Friday’s selling leaves the index in a ‘no-mans’ land. What was particularly disappointing was to see such selling coming off the back of very strong NFP data. If there is a positive, it’s that the selling was not on heavier volume distribution, which is unusual given the significance of the data released.
The Nasdaq (NYSEARCA:QQQ) is getting close to the 15% zone of oversold historic conditions dating back to 1971. As with the S&P, selling volume did not rank as distribution. Friday’s action wasn’t pretty, but there may be grounds for optimism.
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The Semiconductor Index continued its run lower with 7 consecutive down days. The chances for an 8th can’t be ruled out, but a bounce of some form will occur sooner rather than later. How much such a bounce can help the Nasdaq and Nasdaq 100 remains to be seen.
Just as a watch point for Nasdaq breadth, the Percentage of Nasdaq Stocks above 50-day MA has dropped into oversold conditions. The Percentage of Nasdaq Stocks above 200-day MA has tagged the 2014 swing low. Any additional losses will push this breadth metric down to 2011 swing lows. However, other metrics haven’t reached oversold levels: the Nasdaq Summation Index is well off oversold conditions, and Bullish Percents has yet to tag the 2015 low.
For Monday, watch premarket for leads. A weak Asian session might offer an aggressive long at the open. What will be more telling is how far the next rally goes. I suspect there are plenty of ‘weak-hand’ longs who bought shares on the premise of the ‘Santa Rally’ and are now regretting it.