More than 50% of the stocks in the S&P 500 are currently in oversold conditions.
Here’s the chart:
Let's break down what the chart shows:
The blue line in the top panel is the S&P 500 index price.
The black line in the bottom panel is the percentage of S&P 500 stocks oversold (Daily RSI14 less than 30)
The gray lines indicate when the percentage of S&P 500 stocks oversold crosses above 50.
The Takeaway: The recent environment has not encouraged risk-seeking behavior. We have now entered a phase where many risk assets have broken lower from topping formations and are now retesting prior cycle highs.
When we take a look under the hood, we find that over 50% of the stocks in the S&P 500 are now oversold (Daily RSI falling below 30). This level of oversold conditions has not been seen since the market crash of 2020.
So, I dug into the data to see what typically happens to the market when the majority of S&P 500 stocks become oversold.
The findings suggest that when the stock market is this washed out, it could mark the bottom of the downwards move.
While this sample size is small, we should approach this information with caution. Nevertheless, historical data indicate that future returns tend to be quite strong. On average, one year after reaching such oversold conditions, the stock market typically rises by over 30%.
Grant Hawkridge | Chief Aussie Operator, All Star Charts
PS: Steve is going LIVE today at 9:45 a.m. ET to discuss the current action.
He will cover what’s working, what’s not, and what comes next. You’ll see live charts, key price levels, and exactly how he is thinking about new opportunities as this market shakes out.
If you find my content valuable, I would greatly appreciate it if you could share it with your friends, family, and colleagues. Your help in spreading the word is invaluable in supporting our work. Thank you to all of you who share!
