Potential Signs Short Term Market Bottom
The market gapped down big and closed below the open on Monday for a second day in a row. Selling was heavy but not excessive or extreme by any stretch of the imagination.
The major indices all fell between 4% to 5%. Breadth was deeply negative, which is the only silver lining right now. The NYSE Up Issues was 6% and the Up Volume was 3%. Total volume declined relative to Friday’s levels.
The S&P 500 is down 20% from its February high and is just beginning to register some extreme readings within the 500 stocks that make up the index.
The McClellan Oscillator, a widely used breadth indicator, closed at -299 on Monday. It’s pretty rare to see a reading outside of -250. The percentage of stocks trading 1 Sigma and 2 Sigma below their 40-day moving average is now at historical extremes. 85% of all stocks are at least 1 Sigma below their 40-day moving average. The number of stocks at least 2 Sigma below their 40-day moving average is 65%. This is actually even more extreme than the first number because 2 Sigma is exponentially greater than 1 Sigma.
There have only been 6 other periods where stocks were at least 1 Sigma below this MA:
1) 10/19/87 – 10/29/87, 2) 8/31/98, 3) 9/21/01, 4) 7/23/02, 5) 10/2/08-10/17/08, and 6) 11/20/08.
ALL of these marked market bottoms and 4 of 6 instances lasted ONLY a single day.
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