Time to call S&P 500 overbought?

January 15, 2018 01:30 PM

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The stock market is extremely strong, however, I say that the market is overbought (at least temporarily). You can see on the chart below that the E-Mini S&P 500 is outside the Keltner channels representing 3x the average true range on the daily chart. To me, this is very extreme, and sentiment may be too euphoric at this point. We may see one more push higher above 2800, but I say this market will start to distribute in a gradual lower fashion, even if it's a 1% gradual move lower.

The theme driving several asset class is a weakening U.S. dollar. The USD is really getting hit hard with the euro breaking above 1.23 today. Interestingly, US bonds are still positioned below key moving averages and have not rallied today on a weak USD, telling me that we have more downside ahead for bond prices (my opinion). 

Rising yields may put a damper on the stock rally but overall, I see nothing in the near term that would cause a big correction. There is always the unknown x factor, however. We see gold rallying during the past three weeks in a straight up fashion. Gold typically rallies during periods of global uncertainty as well as a period of low interest rates. We see the low interest rate trend shifting, so why has gold rallied so much?

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