After today's market downdraft, the market is certainly oversold on a short term basis. The percentage of stocks trading above their 50 day moving average is now at the same level reached in late 2008, i.e., .40%. The caveat is, historically, the market has had a tendency to trade lower on a prospective basis after these low moving average percentage levels are reached.
A key question will be the impact the recent market action has on consumer and business sentiment. Additionally, if Congress and the administration in Washington would simply stop pointing fingers at S&P and admit and address the budget problem, i.e., reduce federal expenses, the market could find firmer footing. Now the increased risk is the negative impact on sentiment and is the potential impact on sentiment enough to tip the economy into a recession. Lastly, Europe has problems that could ripple through the global economy as well.
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