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Stocks continue to Decline but Technicals Show an Oversold Scenario

David Becker
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The recent economic data released in the US shows a slowdown that can create an issue for the new Federal Reserve Chairwoman Janet Yellen. Yellen was sworn in on Monday, and inherits an economy that is slowly improving. The issue for the new Chair is that the timing of its tapering of its bond purchase program has coincided with softer than expected economic data points which call into question the strength of the US economy.

The weather could be one of the issues that has generated the recent slowdown, but Monday’s ISM manufacturing report was well below consensus estimates which drove investors out of stocks and into bonds.

The technical picture for stocks is negative, but there are a few indicators showing an oversold environment. First, as of Monday, there are only 25% of the S&P 500 stocks that are above the 50-day moving average. The last time this scenario occurred was in October of 2013, prior to the open ended QE program and a 30% rally in the large cap index. The print at this level represents an oversold condition that is likely to see some buying from bargain hunters. Additionally, the RSI on the S&P 500 index is printing near 30 which reflects an oversold condition as well.

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