Stock just triggered an ‘overbought’ signal that’s typically led to a decline over the next month
Despite recent stock market gains over the past six weeks, one technical indicator suggests a pullback may be ahead. Overbought conditions have persisted even into what has broadly been a strong rally for the major indexes, according to Wolfe Research analyst Rob Ginsberg. The tech-heavy Nasdaq Composite is up by more than 2% in December, while the Dow Jones Industrial Average and S & P 500 are 1.7% and 1.6% higher, respectively, extending November’s big advance. .SPX YTD mountain S & P 500 in 2023 According to Ginsberg, more than 30% of the stocks in the S & P 500 just hit a 14-day Relative Strength Index (RSI) level above 70. An RSI value higher than 70 indicates overbought conditions — and that a stock may be soon due for a pullback. “Over the past 25-years, there have only been 33 occurrences of readings above 30%, a level we just hit,” Ginsberg wrote in a Tuesday note. “On average, the market has declined by 1.5% the following month, but with a decidedly negative bias,” he added. More worryingly, the stock market has fallen by an average of 3.6% one month later roughly 60% of the time when this overbought indicator has been reached. The last time 30% or more of the stocks in the S & P 500 were overbought was in 2022. During the recovery from the Covid selloff of 2020, levels approached 45%. Boeing and Kraft Heinz were among stocks that recently had elevated relative strength indicator readings suggesting they may be overbought, according to a screener by CNBC Pro. —CNBC’s Michael Bloom contributed to this report.
Aniket Pujari
6,160 PostsAniket Pujari is a passionate finance and technology enthusiast with a strong academic background in Financial Markets. Since 2015, he has been deeply immersed in the world of cryptocurrencies, blockchain technology, and global financial systems, building a wealth of knowledge and expertise in these rapidly evolving fields.
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