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S&P 500 Relative Strength Stock Market Index is Most Overbought Ever: Be careful!

We use numerous indicators to guide us on the strength and weakness of the stock market in terms of when to buy, sold and hold.  One of the important short-term indicators we follow is the 14-day S&P 500 Relative Strength index (RSI) which shows us the percentage of stocks that are overbought or oversold in the S&P 500.  When the S&P 500 RSI is above 70% that tells us the stock market is overbought. Meanwhile, 30% and below tells us that the market is oversold. That generally indicates buying opportunities.  The chart below shows us that the S&P 500 RSI is not only over 70 but is at its most overbought level ever. That is an indication to be very careful.  Certainly for the short-term.

S&P 500 Relative Strength Stock Market Index is Most Overbought Ever: Be careful!
S&P 500 Relative Strength Stock Market Index is Most Overbought Ever: Be careful!

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Brad Lamensdorf

Brad Lamensdorf, the founder and portfolio manager of Active Alts, is a principal and co-manager of the AdvisorShares Ranger Equity Bear ETF. He previously managed a long-short investment partnership from 1998-2005 under the name Tarpon Capital Management. Earlier in his career Mr. Lamensdorf was an equity trader/market strategist for the Bass Brothers’ trading arm. He managed a short only portfolio in addition to co-managing a $1bil hedging program. He also served as in-house market strategist for the entire internal and external network of Bass Brothers money managers.

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