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We are just a couple weeks into the new year and the market has pulled back nearly 10% from the highs made after the volatility we saw last August/September.   How oversold are we?

Here is a look at the % of stocks in the S&P 500 above their 200 day moving average – as you can see the reading is close to 25%:

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Breaking this reading down to shorter time frames – According to Index Indicators, fewer than 10% of SPX (S&P 500) stocks are trading above their 3,5,10,20, and 50 day moving averages.  That’s what you call broad market weakness.

Thanks to Brett Steenbarger, Ph. D, we know this level of weakness has only occurred 7 times since 2006.  Dr. Steenbarger points out HERE, that in all 7 occasions we have seen bounces higher followed by even lower prices in the coming months.

Are we oversold? According to most short term indicators designed to measure that – Yes.   Does that mean we go up from here – No.

Investors need to be prepared for whatever unfolds, and that means to have a plan/strategy and the ability to stick with it.  What if we go up 20% from here?  What if we go down 20% from here?  What if we go nowhere?

We rely on a rules based approach for whatever scenario unfolds; Rules backed with evidence, designed to adapt and adjust to the market environment.

What’s your plan?