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I wanted to check my indicator charts and determine how oversold the market is right now. You would think, after this historically quick correction and likely soon-to-be bear market, that all of our indicators would be completely stretched out and oversold. That isn't quite the case. First, let's look at the VIX and breadth numbers from previous bear market moves. The VIX is near its highest reading for the past 10 years, so that is oversold. Yet New Lows never have reached the depths we saw in 2018. Advances-Declines is oversold and on par. The Advance-Decline Volume, however, has not even come close.
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The new DecisionPoint Golden Cross Index and Silver Cross Index are about where they were after the decline in October. We need to see oversold readings like we had at the actual market bottom in December 2018. The Silver Cross Index is very oversold, but not as oversold as it could be. The Golden Cross Index is clearly NOT oversold, as it's barely hitting neutral territory right now.
Finally, I'd like to leave you with this chart on %Stock Above Their 20/50/200-EMAs. The short and intermediate term are oversold, but the long term still has ground to cover to move to the same levels as we saw in previous corrections. We also saw a bounce on both the ST and IT indicators, but it didn't result in the end of this correction.
Conclusion: The market is short-term very oversold. The problem lies in the longer-term readings, which are not really oversold enough. Carl and I are looking at this as the start of a bear market. More long-term damage needs to be done to those indicators. DP subscribers: To see more indicator charts, be sure to catch Carl's Weekly Wrap today!
Technical Analysis is a windsock, not a crystal ball.
Happy Charting! - Erin
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