A Short Term Consolidation Is More Likely Than A Pullback

In today’s daily market outlook we examined the S&P 500’s short-term overbought conditions.

Whenever the S&P 500’s hourly RSI has become this overbought in the current correction, it always made a pullback or consolidation.

The stock market’s recent price action is strong, which suggests that a sideways consolidation is more likely than a pullback. The S&P 500 has gone up more than 0.8% each day over the past 3 days.

When this occurs for the first time in half a year while the S&P is above its 200 daily moving average, the stock market’s downside over the next week is limited.

Click here to download the data

Conclusion

As you can see, the stock market tends to go up in the next week when it goes up >0.8% 3 days in a row. In the historical cases that the S&P went down, it only went down a little bit in the next week.

With hourly RSI very overbought, this suggests that the stock market will make a short-term consolidation before powering higher.