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S&P 500 Most Overbought In A Year

TedTed
in Off-Topic
FYI: Below is our trading range chart for the S&P 500. Even though the index has yet to take out its May 21, 2015 all-time high, it is now at its most overbought level of the last year. The top of the red area in the chart below represents two standard deviations above its 50-day moving average. As you can see, the index has even moved above the top of the red zone to close out the week.
Regards,
Ted
https://www.bespokepremium.com/think-big-blog/sp-500-most-overbought-in-a-year/

Comments

  • Old_Skeet
    edited March 2016
    Hello,

    In my study of the markets, I am finding that the S&P 500 Index is selling at a TTM P/E Ratio of 23.6 which according to the Rule of Twenty indicates that the Index is well overbought and overvalued. I am thinking that unless earnings soon catch up with valuation I am looking for a pull back coming possibly before summer arrives.

    With this, I am strongly thinking of trimming my allocation to stocks, before month end, as I am above my target weighting for equities but within their allowable allocation range within my portfolio.
  • beebee
    edited March 2016
    Messing around with daily moving averages (dma) this week...my amateur opinion in chart form:

    image
  • Old_Skeet
    edited March 2016
    If ones sells into strength then they are not a contributor to exasperating downward market movement. Even after review of the above technical chart, that bee has provided, I am still with my thoughts to reduce my equity allocation within my portfolio due to the Index's current overbought and overvalued condition. In addition, I am above my target weighting to stocks within my portfolio. I bought stocks during the recent selling stampede and now that they have recovered becoming overvalued, by some indicators, might be a good time to rebalance and to pare back the equity side of the portfolio.

    If I were short in my equity allocation, I'd probally be thinking to myself why did I not buy when stock prices were in decline? And, if I were short in my allocation to stocks I think I'd await the next pull back before buying. Some say follow the momentum but at these elevated valuations ... I am most definately not a buyer of equities, in general, at this time. I think stocks will become under some near term selling pressure as some investors will perhaps do some selling to pay tax bills owed before April 15th.
  • beebee
    edited March 2016
    Also, one shouldn't disagree with @Ted especially when his post is confirmed by @Old_Skeet.;)

    I was just adding (or subtracting) to/from the thread with some recent readings on a S&P 500 (VFINX) 10 dma strategy discussed here:

    60/40 stock/bonds portfolio with market timing

    Summary

    -Avoiding large drawdowns in a portfolio is possible with moving averages.

    -Diversification + Market Timing can lead to a balanced portfolio with the added bonus of removing prolonged and deep drawdowns.

    -Market Timing merges the simplicity of a buy and hold portfolio with the lower risk of an actively managed strategy.

    -Knowing when to go to cash in your portfolio is automated using a simple moving average to time the market.

    @jstr commented to this link with:
    " using healthcare for the 60% allocation has produced alpha ( appreciably ) above VFINX ( 13% CAGR, Sharpe 1.0 -21% max DD with non MA strategy / rebalance annually 1986 - 2015 ) "

    Respect all successes.
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