Tags: stochastic | S&P 500 | Commitment of Traders | charts

S&P 500 Hits Most Overbought Level in 25 Years

By Rick Pendergraft   |   Tuesday, 07 May 2013 07:40 AM

One of the things I like to do each weekend is look at the charts for each of the indices in different timeframes. I look at the daily, weekly and monthly charts for each of the main indices.

The one thing that stood out this past weekend was that the monthly slow Stochastic Oscillator readings for the S&P 500 are at 99.67 and 98.50. This is the highest these readings have been in the past 25 years.

For those not familiar with the slow stochastic indicator, it is simply a two-part indicator that measures overbought and oversold levels. Readings above 80 are considered overbought.

Overbought readings by themselves don’t normally bother me all that much, but when we see record levels like this at a time when investor sentiment is at extremely high levels, it tends to make me uncomfortable.

There are a number of sentiment indicators signaling extreme optimism, such as the Investors Intelligence ratio, the CBOE Volatility Index and the Commitment of Traders report for the mini-S&P futures.

The most recent Commitment of Traders report shows that commercial hedgers are net short over 300,000 contracts. This is the first time that has happened since the last week of 2008.

The market keeps moving higher and the Dow Jones Industrial Average and the S&P 500 are at record highs, but I don’t think it is time to be adding to your stock holdings.

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