US Stock Market Internals (Update) – A Retesting Of The Low Seems Likely

Today, we wanted to update (with some additional charts) of a post from Monday on the stock market internals for the US market. The whipsaw nature of the market this week can easily be seen in the market internal charts. The key takeaways are 1) stocks quickly bounced from oversold levels 2) most indicators briefly hit the lower end of the 2011 selloff levels 3) 2008 selloff levels remain far off 4) a retesting of the lows seems likely as the bounce has been extremely fast and usually more time is needed before a low is made. All data is updated as of 8/27/2015.

After hitting a low of 90%, currently 65% of US stocks are in a correction over the past 200-days. We hit this percentage of stocks in a correction in 2012 and 2014. At one point in 2011, 96% of US stocks were in a correction and we went about two months where at least 80% of stocks remained in a correction. In October 2008, fully 100% of all US stocks were down at least 10%.

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About a 1/4 of all US stocks are currently in a bear market over the past 200 days. This is quite the improvement since Monday’s tumble when 43% of US stocks were in a bear market. Looking at this metric, it is clear that this sell off (so far at least) has been less painful than 2011. In August and October of 2011, more than 2/3 of all US stocks were in a bear market. And of course in 2008, the percentage of stocks was even greater at an almost unbelievable 96%.

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New lows spiked after Monday’s selloff as the percent of stocks making new 200-day lows hit 40%. There were this many stocks making new lows in October 2011. In August 2011, however, 58% of stocks hit new 200-day lows. In 2008, 3/4 of all stocks hit new 200-day lows.

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Stocks quickly bounced off of oversold levels at least in regards to the percentage of stocks trading above its 200-day moving average. Generally, 20% is considered oversold and 80% is considered overbought. As you can see in the chart below, however, stocks can remain oversold/overbought for a several months at a time. It would be surprising if this series made a “v-shape” recovery without testing 20% (or lower) again in the near future.

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Part of the reason why we feel confident that the percent of stocks trading above its 200-day moving average will again retest 20% is because of this chart below. Here we show the percent of stocks where the 50-day moving average is above the 200-day moving average. This is a good measure of momentum and as you can see momentum in US stocks is still trending lower. Also, we are far from levels seen in the 2011 and 2008 periods.

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One measure that has surpassed 2011 levels and is currently just above 2008 levels is the 1-week advance/decline ratio. In the chart below, we show the 13-week moving average to smooth out the noise in the chart. The decline in stocks, while not as steep in terms of performance as in 2011, has been incredibly widespread.

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Finally, stepping back for a quick global perspective, more US stocks are outperforming the MSCI World Index than are not. Currently 59% of US stocks are outperforming the MSCI World Index. This is far from the 70% level hit earlier this year but for relative performance you are still better off picking US stocks.  At one point in 2011, only 41% of stocks were outperforming.

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