The Challenge With Technicals: All Sectors Now Look Either Overbought Or Loaded With Momentum


The technicals are starting to look shaky, for all sectors, according to Bespoke Investment Group (BIG).


The light red and green regions represent between one and two standard deviations above (or below) the 50-day moving average (DMA), while the dark red (and green) shading represents more than two standard deviations above (or below) the index’s 50-DMA. As shown in the chart, the S&P 500 and all 10 sectors are currently trading at overbought levels, so the recent strength in equities has been a tide that has lifted nearly all boats. To further illustrate this point, we would note that as of yesterday’s close, 92.4% of the stocks in the S&P 500 are trading above their 50-DMA while 77.4% are overbought (1+ standard deviation above 50-DMA).

A commenter on Bespoke’s site replies:

OB [over-bought] conditions can remain for an extended period of time. It is important to note this condition but itself is not sufficient to be a trigger for going Short.

One challenge with technicals is that while some would agree with Bespoke’s take of the data above, some could also see the above data as a sign of substantial momentum. At the very least, the technicals remind us of just how quickly and broadly the S&P 500 has snapped up since early February.

(Bespoke chart via Abnormal Returns)


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