The S&P 500 is 410 points (33%) below its 200 day moving average – the most oversold it’s been since 1937.
The 200 day moving average generally serves as an indicator of the markets intermediate term trend. When it is rising, the market is generally thought to be in a bull market. When it is falling, the market is generally thought to be in a bear market.
As you can see from the link, it’s pretty rare for the S&P to get more than 20% above or below its 200 DMA. The 200 DMA tends to act as a magnet, smoothing and rationalizing the markets movement in the direction of the overall trend. When it gets too far away from the 200 DMA, it tends to revert back fairly quickly without necesarily changing the overall trend.
At the same time that the S&P is as oversold as its been in 70 years, volatility is starting to subside. Intraday volatility peaked around 90 on October 24th. 10, 20 and 30 day average volatility have all peaked and 50 day average volatility looks like it might have peaked on Friday.
Put these together and you have one of the most historically oversold markets, trading at levels of significant support, combined with diminishing fear and selling intensity. All these factors have me continuing to believe that we are in the process of forming a significant intermediate term bottom.