Are We Overbought?

Sure.

So what?

What does that even mean? Truth is that it can mean a lot of things. But the one thing that cannot be argued against is that we see evidence of an extreme level of buying. This is a good thing. We said last week that we wanted to see RSI readings above 70 in the major averages. The overbought $DJIA $SPY $QQQ and $IWM confirm that we are now in Bullish Mode for each index.

It's times like these when everyone takes out their John Maynard Keynes quote, "Markets can remain irrational longer than you can remain solvent". But it's true and we see it all the time. How long has Natural Gas been going down? Feels like forever. How long has Gold been outperforming Stocks? Again feels like forever. And in the short-term, how many non-believers have we seen throughout this rally? Not just the most recent melt up in stocks, but the whole thing from March 2009?

The point is that there are many different ways to measure overbought. And some oscillators, like RSI, may already be there. But they can stay overbought. And they can remain up there for a lot longer than you might expect.

But here is one gauge that has yet to reach the October highs. Bespoke Investment Group put together a chart of S&P500 companies trading above their 50-day moving averages:

The downtrend has been broken, but no new highs yet. Sit tight. Let it play out. Raise your stops and buy your puts if that's what helps you manage risk. But there is money to be made in individual names, not just trading the indexes up and down. It feels nice to be able to say that.

Go get 'em today.

Source:

S&P500 Sector Percentage of Stocks Above 50-Day Moving Average (Bespoke)