One Day of Selling, However Sharp, Won't Create Oversold Conditions « Market Montage

Based on which index you use yesterday's selling was generally the worst (or second/third worst) in a year.  Particularly toxic, was how it came immediately after a strong day up.  Clearly there have been issues building for quite a few weeks.  Interestingly this is one of the longest corrections in times of duration since the March 2009 bottom, yet until yesterday it had been among the shallowest when looking at the S&P 500 (much more harsh in the NASDAQ).  I believe part of that is the strength in the major financials, which up until yesterday, had held up well.

Since yesterday's flush came immediately after a rally attempt there is not an oversold condition created.  Some examples of things to review are the % of stocks over the 50 day moving average and NYSE McClellan Oscillator.  Neither is at an extreme.

With yesterday's loss, the 50 day moving average will surely now be curling downward in slope joining the NASDAQ in the coming days/weeks, which is a new negative.   As always the most violent rallies occur within the context of selloffs so at some point we're going to see a vicious rally attempt but the intermediate term is not looking very constructive at this time.   The S&P500 is now below the key 1404 level which has been a battle line for much of 2012.  The target of 1395 which was the obvious lows of August was breached yesterday, and the 200 day moving average nearer to 1380 is the next obvious level.

Speaking of oversold, the destruction in Apple is quite impressive – mimicking the action in late winter and late summer when the stock rallied in a very similar action.  The RSI is now below 30 for the most influential stock in the world.

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