Over the past few weeks, the stock market has moved from an oversold extreme to an overbought extreme, a function of the violent December sell-off followed by the near-vertical rally.
On December 24, the S&P 500 closed at 2,351, down 14.8% on the month and 20% from its all-time high. Notably, the NYSE McCllellan Oscillator (a market breadth indicator) hit one of its lowest levels in the past 20 years: -109.61.
Note: Data on $NYMO (McClellan Oscillator) is from StockCharts.com and goes back to June 1998.
By all accounts, the market was extremely oversold. What