The Bear Is On The Prowl As Stocks Reach Overbought Levels

US Markets

  • S&P 500 Futures +8.25 points
  • US 10-Year 1.82%
  • Dollar Index 97.84
  • VIX 12.29
  • Oil $56.46

International Markets

  • Japan -0.53%
  • China +0.85%
  • HK +1.55%
  • SK -0.34%
  • Germany +1.01%
  • UK +1.24%

Reading The Markets Premium Content for November 18

MACRO

Germany

Markets around the globe are once again in rally mode, with the German DAX pushing to its highest level since early 2018. But, there doesn’t appear to be a catalyst to the rally, which suggests the bid we continue to see in the market is just driven by a real appetite to take on risk assets.

germany, dax

S&P 500 Futures

Not to rain on anyone’s bull parade, but it is essential to note that the RSI on the S&P 500 futures is at its highest level in 2019 and going back to January 2018. That is a bit of concern to me, and it suggests to me this market may be getting overbought.

S&P 500, spx

S&P 500 Cash

The same can be said of the S&P 500 cash market, which is also approaching high levels. Again, as I noted last night, we have a VIX that is approaching a region that suggests volatility may be due to spike, while the RSI on the S&P 500 is at overbought levels. It is starting to make me concerned, and we need to see the pace of the rally slow to make it more sustainable.
The chart below shows the S&P 500’s RSI has only been at this level on a handful of occasions going back to 2012. So let’s be cautious here. This is probably not the time to push all your chips on to the board. It may be time to be less aggressive.

S&P 500, spy

It is not to say this to a long-term top, because I doubt that is the case. But, a short-term pullback is undoubtedly possible.

Home Depot (HD)

Home Depot had been the pillar of strength in the consumer discretionary sector. But that is now changing with shares falling in the pre-market after giving disappointing guidance. The stock is falling below the uptrend for the moment, and that means shares can fall back to support around $219.

Home depot

Amazon (AMZNWealth Strength IndexAAPL is Extremely Up and trending Up)

With Home Depot down, more pressure will fall on Amazon to keep the discretionaries together. But that’s not looking like a good scenario. The stock continues to trend lower, and the RSI continues to trend lower. Not a good formula. Amazon’s declines are far from over.

Amazon, amzn

AMD (AMD)

AMD got another significant upgrade today, this time from Wells Fargo, which increased its target on the stock to $48 from $40. The stock is on a path to $43. The slope of the rise is starting to look worrisome to me.

amd

Micron (MUWealth Strength IndexAAPL is Extremely Up and trending Up)

We can watch MUWealth Strength IndexAAPL is Extremely Up and trending Up again today, as the stock battles resistance at $48.25. We’ll see if it can get through today.

micron, mu

Netflix (NFLXWealth Strength IndexAAPL is Extremely Up and trending Up)

Netflix is breaking out rising above $300, which had been a considerable level of resistance. Unlike the S&P 500, Netflix is not overbought yet, which means shares can continue to grind higher towards $320.

Netflix, nflx

-Mike

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