Financials Trying To Emerge From Oversold

  • Jason Goepfert

    Jason Goepfert

    Published: 2017-09-11 at 13:16:31 CDT

Over the past few months, financials have gotten hit hard. During the past week, fewer than 20% of members in the sector were trading above their 50-day moving averages, a deeply oversold reading, especially during the past 8 years of this bull market.

That weakness has pushed Financials to be the weakest among major sectors.

We can see that over the past year, such a reading was seen only one other time, right before the spring rally.

Using the Backtesting Engine, it's apparent that when the sector first emerged from a deeply oversold breadth reading (fewer than 25% of members above their 50-day moving averages), buying interest tended to persist. Two weeks later, Financials added to their gains 80% of the time.

During a bear market, the stocks often see almost immediate selling pressure after emerging out of oversold territory, so that kind of behavior is always something to watch for.

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