Financials Feeling At Home In Overbought Territory

The S&P 500 Financials sector has been trading in overbought territory (at least one standard deviation above its 50-DMA) for 22 consecutive trading days as of yesterday’s close. That ties the sector’s previous two streaks that ended on 12/6/24 and 1/12/26, and the sector appears poised to extend that run today.

While the current streak is only tied for the 14th-longest of the past decade, it has been unusually intense. The sector closed at least two standard deviations above its 50-DMA on 16 of the 22 days during this streak, including each of the last four. The two previous 22-day streaks included ten or fewer such closes. In fact, no other streak of at least 22 overbought days during the past decade has featured a higher concentration of extremely overbought readings.

Over the last ten years, there have been 17 streaks when the sector was overbought for 22 days or longer. The longest streak lasted 52 trading days, from 1/19/24 to 4/3/24, although the sector reached extremely overbought territory on only four of those days. Thirteen of the 17 streaks lasted longer than the current one, but Financials could surpass several of them if the run continues over the coming days.

Following the 16 prior streaks, performance was typically weak over the short term. Once the streak ended, Financials posted median declines of 1.91% over the next week and 1.68% over the next month. Over the next three months, the chances of gains improved to a coin flip, and over the six-month and one-year periods, median returns improved to 6.65% and 14.48%, respectively.

The sector has rallied 7.8% during the current 22-day streak, roughly matching the median gain during comparable streaks. How forward returns stack up against historical instances will come after the sector finally falls out of overbought territory. For now, though, the streak continues to roll on.