According to Jeff Cox, the S&P 500 is now three standard deviations away from its 50-day moving average. As noted by Bespoke's Paul Hickey, "this is as oversold as they have been at the lowest points that the market has seen going back to even the financial crisis."
Although the stock market may have become oversold, there is little sign the market is priming itself to start a rally. In fact, the markets have been largely satiated and investors have had little incentive to form significant positions in the market. Take, for example, what has been billed as one of the hottest IPOs of the decade: Facebook. Facebook's (NASDAQ:FB) IPO today was a dud, with its stock price initially set at $38 and ending the first day of trading at $38. What seems to be more alarming is that its IPO helped catalyze freefalls in the stock performances of other technology companies. LinkedIn (NYSE:LNKD), Groupon (NASDAQ:GRPN), Pandora Media (NYSE:P) and Yelp (YELP.N), fell more than 5 percent today. Zynga (NASDAQ:ZNGA) led the pack downward with its 13% decrease; things got so bad that it had to stop its stock from trading twice today. Instead of spurring investor demand and interest in technology companies, Facebook's IPO actually sapped investors from the other technology companies. Today has shown that the supply of technology investment options far exceeds the demand, as investors invested in technology companies such as Zynga withdrew their investments to direct their funds into Facebook. This withdrawal far exceeded the demand that Facebook should have created for the technology sector.
Meanwhile, investor sentiment, according to the American Association of Individual Investors, is at its lowest level since August 26, 2010. Bearishness, on the other hand, improved to 46 percent, its highest show since Sept. 29, 2011.
In conclusion, we may be overdue for a rally, but there is very little chance of a current rally in lieu of some significantly positive developments.