Stock indices have revealed that the stock market is at its most overbought. Such an incident has not happened since Bill Clinton was president and this is indeed good news.
The fourteen month relative strength index or the RSI, an index that tracks the speed of price movements of S&P 500, stands at 70. The RSI shows values between zero and hundred. When the index is at 30, the stock market is considered to be oversold and when the index is above 70, the stock market is considered to be overbought. With the RSI at 87, the stock market is definitely overbought after twenty two years. Technical analysts at Oppenheimer have stated that the figure has been reached only one percent of the time from 1930. The index reached the level it shows now only in 1996, 1986, and 1955. These three years are considered to be the strongest bull markets in history.
Despite the high RSI index, the market is still facing returns that are above the average. In all these occasions, another thing to note is that the RSI index has progressed atleast by a year as compared to the market. The RSI showed 87 back in June, 1996. During that time, the S&P 500 had risen by 128 percent. After nearly ten years in the RSI indicator had reached somewhat similar levels and the S&P 500 gained about fifty percent from the bull market.
The past and the present
Looking further back, in the year 1955, the RSI rose to a figure of 88 and gained about fifteen percent of the market share in July of that year.
According to analysts, the current market does not seem to have any indication of ending soon and has been running for a good nine years. This is in fact, among the largest bull market in stock market history. It is second only to the bull market between 1990 and 2000.
S&P 500 has climbed 320 percent from its levels back in 2009. The bull market between 1990 and 2000 has shown an increase of a staggering 417 percent.
The current overbought situation of the stock market shows that strong credit is among the major factors that determine the strength of the market. Experts are largely confident that currently, the equities market is trading at high levels.
Wall Street is not far behind and has had a positive start this year with the Dow at six percent and NASDAQ at about nine percent.