Widespread pessimism as stocks suffer brutal selling pressure (by SentimenTrader)

This is probably the most brutal market I've encountered in 20 years of publishing, 30 years of investing, and 80 years of data history. The 1930s were more consistently and more egregiously difficult, and maybe the 1970s could rival it. But in terms of value destruction and lack of alternative investments holding purchasing power, this will rank among the worst stretch of months for investors ever. The sheer overwhelming selling pressure has been remarkable...when stocks drop, almost everything drops. And volume has been almost entirely one-sided. Wednesday marked the third session in ten days when less than 10% of NYSE volume flowed into advancing securities.That's enough to rank among the most clustered bouts of severe selling in 60 years. We already know that sentiment is washed out, but pessimism became even more widespread during Wednesday's session. For one of the few times since the financial crisis, half of our indicators are now showing extreme pessimism. The Backtest Engine, available to all IndicatorEdge subscribers, shows that the S&P 500 still lost more than 10% when it was triggered during the pandemic, but otherwise, returns were excellent. Going back to when we started calculating this over 20 years ago, it mainly triggered during short-term bottoms, but with the notable exceptions of the waterfall declines during July 2002 and October 2008. The biggest caveat is that we had fewer indicators then, so seeing more than 50% of them at extremes was more common.

What the research tells us

Wednesday's heavy selling pressure capped what has been a cluster of selling for two weeks. Breadth has been extremely volatile, with a large cluster of positive and negative volume flows. Pessimism has become rampant, with 50% of our indicators at extremes, exceeded by only 73 other days since 2000. Similar conditions tended to lead to rebounds, except for waterfall declines in July 2002 and October 2008.