Stocks Rose Again, Moving Further Into Over-Extended Territory

By Michael Kramer of Mott Capital Management

Founder/CEO at Mott Capital Management, LLC • Aug 29, 2020 at 3:40 PM EDT

Stocks increased yet again and are pushing the boundaries in terms of how overbought they are going to get. The S&P 500 surged to 3,508 and an RSI over 79. If we keep climbing, the next level of resistance comes at 3,527.

Stocks increased yet again and are pushing the boundaries in terms of how overbought they are going to get. The S&P 500 surged to 3,508 and an RSI over 79. If we keep climbing, the next level of resistance comes at 3,527. To say the market will keep rising seems like complete lunacy, but that's what it seems like will happen.

The Fed hasn’t increased its balance sheets in weeks; there is still no relief bill insight. So, I'm uncertain what derails the market at this point. Apple (AAPL) and Tesla (TSLA) will both split their shares on Monday, August 31, so perhaps that will shift the tide?

You can tell traders are just rotating around at this point, looking catch-up trades. I complained for weeks about how Square (SQ) and PayPal (PYPL) were rising, and how Visa (V) and Mastercard (MA) were not participating.

Well, that suddenly shifted, with PayPal and Square going nowhere, and Visa and Mastercard surging. Visa and Mastercard have a lot of ground to catch up on, but it seems like that trade is taking place.

Note that in just one week we went from the number of stocks in the S&P 500 above their 50-day moving average from 64.8%, to 81%. Why is this amazing? Well, because since 2012, the 85% region tends be at the upper end of the range.

Basically, it went from a near breakdown level to almost overbought levels in just a week.

Housing Sector (HGX)

Keep an eye on the HGX. Remember that it told us the Fall of 2018 crash was coming. Nothing to worry about, yet.

Biotech (XBI)

Maybe vaccine fever has passed for now, but the XBI hasn’t been a strong performer since July 20.

Disclosure:

MICHAEL KRAMER AND THE CLIENTS OF MOTT CAPITAL OWN V, MA, MSFT, AAPL, AND TSLA.

Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future results.

This column is my opinion and expresses my views. Those views can change at a moments notice when the market changes. I am not right all the time and I do not expect to be. I disclose all my positions clearly listed on the page, and I do not trade my account on the stocks spoken of in this column unless fully disclosed. If that does not work for you stop reading and close the page. Do not bother me or harass me.

STOCKS IN THIS ARTICLE

Also Mentions:

V AAPL TSLA SPY XBI XYZ HGX MA PYPL

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