These are always good times to assess the health of the market and see what’s happening beneath the surface.
One particular way to do this is by evaluating momentum.
In strong uptrends, stocks typically don't hit oversold conditions or dip below an RSI of 30. Instead, they tend to stay above the 40-50 range and frequently push into overbought territory above 70.
In downtrends, stocks usually don't reach overbought levels. Instead, they tend to oscillate no higher than the 50-60 range and often fall into oversold conditions below 30.
With that in mind, here’s a look at the percentage of stocks in the S&P 500, S&P 400, and S&P 600 that have reached oversold conditions compared to previous cycles.
So far, there hasn’t been any significant expansion in stocks hitting oversold readings.
This indicator helps determine whether the recent action is just a corrective wave or if there’s something bigger brewing beneath the surface.
For now, things look okay.
The bulls do not want to see an expansion in these readings, as it would suggest a shift in the market’s character, putting bears in control.
On the other hand, without new lows and without oversold conditions, a meaningful correction is mathematically impossible.
