AT40 = 18.1% of stocks are trading above their respective 40-day moving averages (DMAs) (oversold day #3)
AT200 = 43.9% of stocks are trading above their respective 200DMAs
VIX = 25.6 (range from 24.4 to 29.7)
Short-term Trading Call: bullish

Commentary
My favorite technical indicator made a valiant effort, but it could not quite break out of oversold territory. AT40 (T2108), the percentage of stocks trading above their respective 40-day moving averages (DMAs), bounced as high as 20.2%, marginally above the 20% oversold threshold, but closed at 18.1%. This is day #3 of the oversold period. Since the typical oversold period only lasts 1 or 2 days, I am posting the chart below as a reminder of the S&P 500’s worsening performance the longer it stays oversold. A downward bias first appears after day #4.

The performance of the S&P 500 for a given oversold duration (T2108 below 20%).

For reference, the S&P 500 (SPY) is up 2.9% for this oversold period so far. So if the oversold period ends after three days, the index’s performance is roughly in-line with historical patterns. For now, the S&P 500’s 1.4% gain confirmed the 200DMA as support but still left the index with the challenge of 50DMA overhead resistance.

The S&P 500 (SPY) continued its bounce off 200DMA support.

The volatility index finally had a relatively calm day. The VIX dropped from 29.1 for a 11.9% decline. This is the VIX’s lowest close since a week ago when it soared for its largest percentage gain in its history.

The process of receding fear has likely begun as the volatility index, the VIX, fell 11.9% to its lowest post-panic close.

My trading strategy for this oversold cycle remains the same. I will eagerly buy another dip inside oversold conditions, but I will be looking to sell those trades on a test of 50DMA resistance. A close AND follow-through above 50DMA resistance will be very bullish especially given AT40 would likely be surging out of oversold conditions at that point. A failure at 50DMA resistance would put a “cautiously” handle on my bullish short-term trading call. A breakdown below 200DMA support would put fresh concerns on my table.