We have been saying for a few weeks that as soon as the S&P 500 reaches the new highs, it will encounter problems. Momentum-based algorithms primarily drove the run to the highs. There are not many fundamental reasons for us to be where we are right now. Currently, the stock market is one of the most overvalued in 135 years. Good investment?
Meanwhile, on a short-term basis, the market is simply overbought. Take a look at the RSI indicator on the chart below. Readings of 75 and above usually produce either intermediate-term corrections or short-term pullbacks. That’s where we are. While overbought conditions don’t typically start bear markets, we believe they signal the beginning of problems that eventually lead to the next bear market.
Dennis Leontyev
