The Market Is Massively Oversold Based On This Indicator

Here’s one reason to believe that bearishness is getting long in the tooth. Less than 2% of S&P 500 stocks are above their 52-week moving average.

Basically the entire market has been creamed and historically this has been a decent trading opportunity.

Traders’ Narrative:

“…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%.”

Chart

I mentioned the financial and energy sector in passing yesterday as being extremely oversold with just 1% (or less) of stocks closing above their 50 day moving average. Today the banks got a major boost, rising much more than the general market proxies. Most are attributing this to the passing of the Wall Street regulation bill in the Senate on Thursday night. As a technically oriented trader I prefer to think of it as an expected reaction to the extremely oversold condition in that sector.

Even if you believe we’re heading lower in the long-term, perhaps we’re in for a near-term bounce.

(Via Abnormal Returns)

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.