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.
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