How Oversold Is The S&P 500?

Articles From: Toggle AI
Website: Toggle AI

After a bleak weekend of scary news and fears of a Lehman-like bankruptcy, stocks opened on Monday … and rocketed higher. A lot. The day-to-day gyrations have been enough to give even a veteran trader a case of motion sickness. What’s going on?

“More buyers than sellers” is the kind of faux truism that is often trucked out when better – if equally banal – explanations are already taken. However, there is a grain of truth in the statement this time around.

A market that doesn’t respond to bad news is always worth pondering. It can be a bullish sign but more often, it’s merely reflecting temporary exhaustion with the current trend. This seems to be the case here.

To wit, positioning in S&P 500 futures (frequently used to hedge long portfolios, or by hedge funds to express a bearish view) was insanely short. As evident from the chart below, it hasn’t been matched by any time since 2011, and before that only during the global financial crisis.

Positioning in S&P 500 futures (frequently used to hedge long portfolios, or by hedge funds to express a bearish view) was insanely short

Another way to look at it is the sheer force of the price action. Every piece from Michael Hartnett at BofA is worth perusing, and the latest is no exception. One chart (featured below) shows that the market has come down so swiftly it would have struggled to go down more in absence of rather apocalyptic news. Credit Suisse rumors didn’t rise to that standard (yet).

S&P 500 20% below 200-day MA good entry point..

The reason this point – that price action was driven by absence of sellers rather than abundance of buyers – is worth highlighting is that it suggests the bear market is not finished.

If you go back to a Daily Brief from a few weeks ago, you’ll see that one of the conditions for a major low is a successful retest of the prior (June) low. This is the battle that’s unfolding currently.

Idea Spotlight: Intel

Analyst expectation indicators for INTC:NASD improved and historically, this led to a median increase in price of 20.12% over the following 3M.

Intel acquired Mobileye in 2017 – a leader in advanced driver assistance systems (ADAS) and autonomous driving technologies. Now Mobileye is planning to go public.

Idea Spotlight: Intel

Originally Posted October 4, 2022 – How oversold is the S&P 500?

Disclosure: Toggle AI

IB Global Investments LLC, a subsidiary of Interactive Broker Group Inc., the parent company of Interactive Brokers LLC, is a minority owner of Toggle AI.

Disclosure: Interactive Brokers

Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Toggle AI and is being posted with its permission. The views expressed in this material are solely those of the author and/or Toggle AI and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.