Has the S&P 500 reached overbought territory?


The S&P 500 (SP500), along with the benchmark exchange traded funds that track the index, are showing overbought conditions, according to a closely watched technical indicator reading seen on Thursday. The situation could point to a potential near-term peak for the market, leading some analysts to expect a retracement of at least some of the recent rebound in stocks.

Funds such as the SPDR S&P 500 ETF Trust (NYSEARCA:SPY), iShares Core S&P 500 ETF (NYSEARCA:IVV) and the Vanguard S&P 500 ETF (NYSEARCA:VOO) are all in focus as conditions across the 10-day advance/decline line read as overbought.

Aside from being at overbought levels, the S&P 500’s A/D line is approaching a one year high and has been sitting in overbought territory for the past 15 trading days.

The A/D line is a breadth indicator used to show how many stocks are participating in a stock market rally or decline.

The S&P 500 and its emulating ETFs have rallied 17.5% from their year-to-date lows back in June. However, they have trimmed gains since the index touched its 200-day moving average, another key technical indicator, on Tuesday of this week.

Bigger picture, the S&P 500 along with SPY, IVV, and VOO sit at roughly -10.7% year-to-date.

Wells Fargo highlighted in an investor note that “trader commentary indicates the SPX could float up to 4400” before the Federal Reserve’s Jackson Hole summit, scheduled to start on August 25. The firm said it sees “this new-found optimism as a marginally contrarian signal.”

“In the near term, we continue to watch yields, especially the 10yr UST,” Wells Fargo added. “We think any significant backup in yields will lead to a tactical rotation into the oversold Cyclical/Value parts of the market, weighing on the broader equity market (which is what we are seeing today).”

In broader market news, major averages tick lower on Thursday following a decline in the previous session.

Leave a Reply

Your email address will not be published. Required fields are marked *