By Bryce Coward, CFA - Gavekal Capital Blog
One would have thought that coming off of the worst day in the financial markets since 2008, stocks would have been thoroughly oversold to such an extreme that a snap back rally would be inevitable. Unfortunately, that is not the case today as our quantitative measures of oversoldness have yet to hit extremes reached at every other important inflection point in the markets over the last 10 years.
Even after Friday's selloff, only 8% of stocks were trading at a new 65-day low. This indicator reaches extremes when 35-50% of stocks are trading at new 65-day lows.
Our 65-day moving average advance-decline line is still strongly positive at a reading of +64, but momentum is deteriorating. Emotional lows in stocks coincide with this indicator having a reading of at least -100.