Post-Election, Has Overselling Created Opportunity?
Market Data Analyst
The post-election selloff comes on the heels of downbeat comments from ECB President Mario Draghi regarding Germany's outlook and the uncertainty of "fiscal cliff" in the U.S.
As of Thursday, Dow Jones Industrial Average was down 5.87 percent from high set in the week ending Oct. 6. If the index closes negative for the week, it would be the third straight down week since May.
Additionally, on Thursday, the index closed below the 50-week moving average, a key technical level. Previously, when the index closed below the 50-week moving average in June, it set up a temporary bottom that ushered in a 15-week rally in the Dow that lasted until the first week of October.
Will the 50-week moving average level hold this time and reverse the short-term oversold condition, leading to a year-end bounce?
While the uncertainty of fiscal cliff (click here to have the 'fiscal cliff' explained) prevails this year, quantitatively speaking, in the past 12 years, the Dow has shown to reverse the downward slide weeks following the cross below the 50-week moving average. During 68 different occurrences since 2000, the Dow has shown strong tendency to recover losses that peak about six weeks after the event. And if history is any guide, there is more than a 65 percent chance that we may see the Dow recover on average 0.95 percent relative to Thursday's close by the week before Christmas 2012.