Helping Self-Directed Investors Succeed Blog - US Market Breadth Tumbles on Stock Downturn as of February 27th, 2020

US Market Breadth Tumbles on Stock Downturn as of February 27th, 2020

February 27th, 2020

US Markets have experienced one of the sharpest downturns in recent years in a matter of just three days on fears over the fast spreading Coronoa Virus. While the number of actual cases is not growing fast, the increasing likelihood of a "community spread" occuring has rattled investor sentiment.

While investors are still grasping the possible economic impact, they sold stocks in a frenetic pace. The Dow 30 Tracking ETF (DOW) is in correction territory dropping over 11% this week. For the month it has given back nearly 10%. The NASDAQ Tracking ETF (ONEQ) and S&P 500 Tracking ETF (SPY) have also slumped over 10% this week.

With this sharp selloff, our short term breadth indicator has plummeted to a low of 13.56. This indicator has reached these levels only 5 times in the past 5 years. The most recent occurence was during the December 2019 market correction.

It is noteworthy after all these past 5 occurences market breadth has bounced higher sharply over the following two months. Investors must take note of this.

The big question this time around is whether investors have fully discounted the impact of the coronavirus outbreak. The only positive news at this time is the slowing of growth of number of cases in China.

In any case, self-directed investors, while anticipating the possibility of some more selling in stocks, must be prepared for a near term bottom to occur.

Let's hope a vaccine is found quickly to resolve this emerging heatlh crisis.

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