Santa’s Gift to Investors: Global Oversold Conditions Present Buying Opportunity

The S&P 500 experienced a waterfall decline in December, something rarely seen. Measuring the decline using a 30-day Wilder Relative Strength Index, it is clear the extremes recently experienced. On Christmas Eve, the S&P 500 punctured 30% on the RSI, something that has only happened several times in since 1990. Similar extreme readings were seen at important intermediate lows (2001-2002, 2008, 2011 and 2015).

We also can assess the recent oversold condition by measuring the percent of stocks trading above their 200-day moving average. A reading below 20% is consistent with a significant liquidation. Readings below 20% were experienced in 1990, 1998, 2001-2002, 2008-2009, 2011 and 2015. On Christmas Eve, only 17% of stocks were trading above their 200-day moving average, down from 82% just three months earlier.