Newton said his view is that investors and commentators “incorrectly label a market overbought based on their own personal timeframe of how they feel about stocks like Nvidia having gone straight up, and they’ve missed it”.

Nvidia rose 3.6 per cent on Friday, for a more than 5 per cent advance this week. It has risen almost 50 per cent so far in 2024, and that’s after it soared 237 per cent in 2023.

Relative strength

Based on the relative strength index, a technical measure of momentum, the S&P 500 was above 70 on Friday (Saturday AEDT), and near 75 on the week. An asset is usually considered overbought when its RSI tops 70. The most overbought the S&P 500 has been this past decade was in early 2018 on monthly charts when its RSI reached 87, Newton said.

While on a daily and weekly basis RSI signals that the S&P 500 is overbought, Newton said, “being overbought does not imply sell. And that’s an important point. Many times when averages just hit overbought levels that can be a buy signal”.

“It’s actually the act of showing divergence, when prices go higher and momentum does not, that it can be problematic,” Newton said. That’s not his view.

Blue Chip Trend Report chief technical strategist Larry Tentarelli said the S&P 500’s new closing high “bodes well over the intermediate to longer term, with a key technical level being cleared today.

“We believe that the combination of very strong corporate earnings, strong jobs data, strong GDP data and declining inflation are an excellent backdrop for equities going forward. We maintain our bullish longer-term view and 5500 year-end price target.”

Bulls holding their ground

As an overall metric, the CNN’s Feed & Greed Index is at 78, or “extreme greed” territory. It has been in “greed” territory since mid-November. It was as low as 22 in “extreme fear” territory in late October.

In its latest weekly survey, the American Association of Individual Investors found that 49 per cent of respondents expect the S&P 500 to be higher six months out. “Bullish sentiment is at an unusually high level and is above its historical average of 37.5 per cent for the 14th consecutive week,” the AAII said.

The S&P 500’s advance, not unexpectedly, has renewed bubble talk too.

“What we have now is a very narrow ‘bubble’, if we can even call it that,” MacroVisor’s Ayesha Tariq said. “I’m not saying we won’t get a correction. We probably will.” She anticipates a pullback in two to four weeks.

‘Only game in town?’

Perma-bear Albert Edwards at Société Générale said in a note this week that he “never thought we would get back to the point where the value of the US tech sector once again comprised an incredible one third of the US equity market”.

“It is tempting,” Edwards wrote, “to be convinced of the narrative that the stellar outperformance of the US tech sector generally and the Magnificent-Seven specifically, are fundamentally driven, or is even the only game in town”.

Edwards said he’s not reassured by arguments that US tech valuations are nowhere near the extremes seen during the dot.com bubble more than two decades ago. “I cast my mind back to 2000 where the narrative around the then IT bubble was incredibly persuasive, just as it is now. But the problem that sceptical investors have now, as they did in 1999, is that selling, or underweighting US IT, can destroy performance if one exits too early.”

3Fourteen Pies said history is on the side of the bulls: “If you study overbought markets, this is a message that consistently emerges. Overbought conditions are unintuitively bullish. Usually, a period of consolidation—not collapse—follows.”

Pies said historically the track record is quite strong after “a bout of feverish buying”.

By his calculation, the average path for the S&P 500 after a surge like the one it is experiencing is consolidation for a couple of months and then further gains, returning 15 per cent over the next year.



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