Is The Stock Market Overbought?

The stock market may have gotten ahead of itself with its sharp correction in Q4, now it might be getting ahead of itself in the opposite direction as the S&P 500 is up 10.89% year to date. This is important because the December crash hurt economic sentiment readings; this rally might be helping them rebound. The stock market doesn’t need to increase over 10% in less than 2 months to help sentiment, but it certainly is speeding up the rebound.

92.45% of S&P 500 stocks are above their 50 day moving average. That’s the highest percentage since April 2016. In the spring of 2016, stocks were also rebounding from a recession scare. This level was never reached in the bear markets prior to the past 2 recessions. That might signal this was a rare bear market without a recession. The stock market is doing so well that about 72% of days this quarter have been positive which would be the most ever since 1928 if it’s maintained for the rest of the quarter. The current record is in Q2 1955.

As you can see from the chart below, commercial hedgers were net long $9 billion worth of Nasdaq index futures at the end of January which is the most since the financial crisis.

Hedgers are usually short. It wouldn’t be surprising if they got even more long since late January because the snapback rally intensified since then.  

How Were Retail Sales?

The December retail sales report was a disaster that made it look like the economy was headed for a recession. Stock traders didn’t believe the number or didn’t think it was sustainable as stocks have gone up since its release date. It doesn’t make sense for the consumer to sharply pull back on spending with real wage growth accelerating and the economy producing so many jobs.

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