From the desk of Tom Bruni @BruniCharting
We’ve written a lot of content on the blog about the current market environment over the last few weeks, but we want to use this post to quickly point to two broad-based breadth measures we’re watching to identify when a tradeable bottom might be in.
The first chart is the Russell 3000, which represents about 98% of the entire US Equity market, with a lower panel showing a daily measure of the number of 52-week lows as a percentage of its roughly 3,000 components.
Click on chart to enlarge view.
The first thing to point out is the nasty failed breakout in prices, but you don’t need me to tell you its bearish implications. What we think is more relevant in this chart is that the % of new 52-week lows has exceeded its January peak already, with prices still 5% + from those lows.
We’re also seeing the highest number of stocks hitting oversold conditions (RSI < 30) since the 2015-2016 bear market, at roughly 40% of the index.
These breadth readings are not unique to the Russell 3000. The S&P 500, Nasdaq 100, and other major indexes are also seeing a similar expansion in stocks with bearish price action and momentum characteristics.
While these high readings may work as short-term oversold signals, we think we’re in an environment where we want to be selling rips rather than buying dips, at least until we start to see bullish divergences in both breadth and momentum develop and signal a tradeable low is in.
We saw these divergences develop during both the 2015-2016 corrections, as well as the selloff earlier this year, before a sustainable rally was staged. Taking that into account, we think it’s unlikely that “the low” is in already.
Thanks for reading and let us know if you have any questions.