Last week I noted how many were taken aback by the sharp -20% plunge in global equities in December. A glance at some of the technical charts would have been enough to warn investors of the broad deterioration that was taking place beneath the surface. The information was in plain sight for those to cared to take a closer look. For example, the $OEXA200R captures the the percentage of stocks trading above their long-term moving average. It corrected sharply in 2018 despite the US equity indices making new highs in September.
Today, the $OEXA200R has recovered from 13% in December last to 40%. So, despite the recent bounce, the majority of stocks (60%) trading in the S&P 100 Index remain in a bearish downward trend. Now markets are short-term overbought and likely to correct. $OEXA200R always tends to re-test the low before meaningful equity market rallies take place. I think the best outcome for global equity investors would be for a re-test of the recent low in $OEXA200R in the weeks/months ahead while equities also re-test the December low, or breach it slightly, and then resume the rally. I still think something more sinister is taking place, but I will be watching closely to see if the selling stops on that re-test.
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