Still Overbought?

You would think that the next stop is the March lows with all the talk about today's sell-off. To put things into perspective, however, the S&P 500 finished the day down less than 1%, and based on its 50-day moving average spread, the index is actually still trading at the upper end of its trading range.

As shown in the chart below, which we update daily in our Morning Lineup, the S&P 500 has been and continues to be in overbought territory.

click to enlarge

Each morning, we also update where sectors are trading with respect to their trading ranges. In the chart below, the circles represent where the sector is currently trading with respect to its trading range (white area is neutral, pink and red areas are overbought, and green areas are oversold), while the tail shows where the sector was one week ago.

As shown, there are currently no sectors that are oversold. In fact, five of the ten sectors (Energy, Materials, Technology, Telecom Services, and Utilities) are still overbought. While the remaining five are within their normal ranges, three of them (Consumer Discretionary, Health Care, and Industrials) are near the upper end of their ranges.

Comments

[sorgmot]

We believe that "sell in May and go away" is in order for 2008. An end of year rally running from Oct. 1 2008 to May 31, 2009 is likely if stocks sink to Oct. 2008.

There will also be stocks and groups of stocks the go counter to the big averages like DOW Ind, and S&P 500, and over the counter listings for the period from May 21, 2008 to Oct 1, 2008.

Alway discuss investment planing with your investment consultant before committing funds to particular deployments.