Some of you might recognize this chart - I posted it about 6 weeks ago when an almost unheard of 92-93%ish of stocks in the S&P 500 were above the 50 day moving average. Not only was that abnormal but it stayed consistent for almost a month. That was the can't lose, hear no evil, see no evil market. As I always like to say it only matters when it matters and suddenly everything matters again.
[click to enlarge]
Excluding the May 6th 'flash crash' we can see the % of stocks over the 50 day moving average in the S&P 500 has now dropped to the low 20% range, and is fast approaching the lows of February 2010. As I noted yesterday, during the late winter selloff of 2010 either the day the market bottomed or the prior day the last 3 of my material long positions had been stopped out (positions had been cut back, not closed) as they all broke their 50 day moving averages... this time around through yesterday I was down to 1 (material) position still holding that level.
Does that mean the bottom is here? No, it just means the conditions are in place relatively soon for some sort of snap back and it becomes increasingly difficult to press shorts as we become 'oversold'. But any of those who lives in 2000-2002 or 2008-early 2009 know, 'oversold' can get 'more oversold'. And the last part of a selloff is usually the most vicious.
The real question is not the when of the bounce, but the nature of it... the V shaped bounces we've been seeing throughout this rally from March 2009 are not something that happened very often prior to the last 15 months - but have now become the rule, rather than the exception.