Now wait a minute! Oil prices are spiking, inflation is hot, the job market not so hot, and the Federal Reserve did not cut rates this week. With all of this negative news hitting the tape, both the S&P 500 (see chart here) and the Nasdaq Composite (see chart here) hit all-time highs. How in the world is this possible? Today the S&P 500 hit an all time high of 7,272.52 while the Nasdaq Composite hit 25,223.12. The small-cap Russell 2000 (see chart here) is also flirting with its all-time high while the Dow Jones Industrial Average (see chart here) has more work to do before it gets to its all-time high.
Breathtaking right? How counterintuitive is this as the recent headlines have not only had much of a negative effect on the markets, but records are being set in the top two indexes. It is a head scratcher indeed. One can say that corporate earnings have come in to support the strength in the markets, but I have seen a mixed bag in the Q1 earnings reports so far. Yes, select tech companies continue to outperform but many other sectors such as consumer stocks have demonstrated some weakness. Whatever the case is, there is an old saying on Wall Street and that is “don’t fight the tape”!
As I look at the technical shape of the market we are seeing some overbought conditions. For example, both the S&P 500 (see chart here) and the Nasdaq Composite (see chart here) have both crossed the 70-value of the Relative Strength Index aka the (RSI). Typically, when stocks or indexes crossover the 70 value level it begins to enter overbought territory. Now many times RSI levels can go extreme and go as high as 80 and even the 90+ value level, which is possible here. I am not really expecting things to get that overbought especially with the current geopolitical backdrop but seemingly anything goes in this market.
Good luck to all 🙂
~George
