Each morning in our Morning Lineup report we provide an update of the percentage of stocks in the S&P 500 (SPY) that are overbought and oversold. Stocks are considered to be overbought whenever they are trading more than one standard deviation above their 50-day moving average, and are oversold whenever they are one standard deviation below their 50-day.
Yesterday, the percentage of stocks that are currently oversold exceeded 50% for the first time since March 16. As shown in the chart below, over the last year prior spikes where the percentage of oversold stocks exceeded 50% led to at least short term rallies in the S&P 500. After five straight weeks of losses, bulls are hoping that history repeats itself.
(Click to enlarge)
