Little-Known Indicator Calling for a Turning Point in the Market

There is an old trading adage I've always liked: "The market will scare investors out or wear investors out."
Prior to Aug. 20, we were in a wear-you-out stage. The Dow was trading in the narrowest range in more than 100 years of just 7.7% from top to bottom.

To make things worse, the S&P 500 had crossed its 50-day moving average a total of 35 times, exceeding the number of crosses ever seen in a full calendar year in the first eight months alone. And the vacillating, whipsaw nature of the sideways trend aggravated investors.
Just prior to the violent sell-off, I wrote about how the massive pickup in new lows indicated a stealth correction occurring in stocks. At the time, about 60% of S&P 500 stocks were down at least 10% for the year -- i.e., in official correction territory -- yet the index was basically flat.
Then, on Aug. 20, the market entered a scare-you-out stage. Traders embarked on a selling spree sparked by global growth fears that brought the index into full-blown correction territory in just four days.
The chart below shows the gargantuan spike in stocks making new 52-week lows as traders panicked and threw in the towel.

The next graph shows how oversold the S&P 500 is using the Relative Strength Index (RSI) indicator. The number of S&P 500 stocks below 30 -- the standard oversold level -- went off the charts compared to every other sell-off in the past three years.  (more)