Canada markets close in 48 minutes

Is the Market Oversold? Argus Technical Analysis

Joanna Kong
Yahoo Finance Premium
NEW YORK, Feb. 25, 2020 -- Traders work at New York Stock Exchange in New York, the United States, Feb. 25, 2020. U.S. stocks closed sharply lower on Tuesday, continuing a broad market sell-off amid rising risk-averse sentiment. The Dow Jones Industrial Average lost 879.44 points, or 3.15 percent, to 27,081.36. The S&P 500 was down 97.68 points, or 3.03 percent, to 3,128.21. The Nasdaq Composite Index decreased 255.67 points, or 2.77 percent, to 8,965.61. (Photo by Zhang Mocheng/Xinhua via Getty) (Xinhua/Zhang Mocheng via Getty Images)

Tuesdays are supposed to mark turnarounds in the market, moving in the opposite direction after a big move on Monday. Not this time! After cratering 112 points on Monday, the S&P 500 (SPY) fell another 98 points, with a two-day decline of 6.3%. That's the largest two-day loss since August 2015. The most recent two-day decline of over 6% was when the market was correcting after its parabolic move from late 2017/early 2018.

Breadth, as can be expected, was also terrible. NYSE advances minus declines was over -2,500 on both days. That is the worst breadth over two days since early February '18. After this similar occurrence two years ago, the "500" continued lower a third day before closing higher. Back in August 2015, the index fell sharply for a third day also before bouncing nicely.

The good news is that we have seen a couple of days where investors threw the baby out with the bath water. Basically, everything was dumped. The best-performing sector on Tuesday was Consumer Staples; but even this group, which is supposed to help investors during market weakness, fell almost 2%. Energy, Materials, Industrials, Technology and Healthcare all fell over 3%. Defensive Utilities fell 2% with interest rates at all-time lows.

The "500" has cycled into oversold territory with the 14-day RSI at 28. This is the most oversold on a daily basis since August 5, 2019. Preliminary put/call data showed high levels of fear on Tuesday, a good technical sign. The "500" held support near 3,125 (50% retracement) with the next area down at 3,050. With the steep decline, rallies could be sharp -- so stay on your toes.

This excerpt was brought to you by Argus Research using the Research Reports feature available through Yahoo Finance Premium. Click here to start your free trial* and step up your investing. Yahoo Finance Premium members can read more technical views by going to Research Reports and filtering by Technical Analysis.

Try Yahoo Finance Premium for free today.*