THE MARKET IS VERY OVERSOLD, BUT ALSO TECHNICALLY VERY WEAK
Russell 3000 is down 19.4% in 13 days and its 14-day RSI is 26. The Russell 3000 represents approximately 98% of the investable U.S. equity market. Just 2 months ago over 70% of the stocks in the Russell 3000 were trading above their 200DMA. As of the close on Monday only 14.3% were trading above their 200DMA. We looked back to the past 25 years (1995-2020) to determine how today compares to history in terms of stocks trading below their long term moving averages (200DMA). We are at or near a historic extreme. The question is – how long will it last?
The chart below shows the Russell 3000 Index in blue and the percent of stocks in the index trading above their 200DMA in orange. There are only 4 other periods in the past 25 years when the percent of the Russell 3000 trading above the 200DMA was below 15%. Those periods are outlined in the table below. They were the Asian Financial Crisis (1998), the Great Recession(2008-2009), S&P’s first downgrade of U.S. Debt (2011) and the TECH sell-off of 2018. Most of these periods of technical weakness were over quickly, but the Financial Crisis of 2008-2009 lasted much longer. At this point, we cannot define which of these scenarios will unfold, but there will be no end to the volatility until it is resolved.
RUSSELL 3000 & PERCENT OF STOCKS TRADING ABOVE THEIR 200DMA – 1995-2020