The chart below comes from the second page of our Morning Lineup report, and it shows the percentage of S&P 500 stocks that are trading at overbought (red line) and oversold (green line) levels. For the purposes of this chart, overbought (oversold) is defined as a stock trading more than one standard deviation above (below) its 50-day moving average (DMA). Since the start of the year, the number of overbought stocks has surged from a reading below 50% at the end of 2017 to above 70% yesterday (the highest percentage since March 2016).
What’s really interesting about the current set-up is that even though more than 70% of stocks in the S&P 500 are overbought, 11% are trading at oversold levels. Going back to 1990, there has never been a time where the percentage of overbought stocks exceeded 70% and the percentage of oversold stocks was above 10% simultaneously! The major culprits behind the high percentage of oversold stocks have been the Real Estate and Utilities sectors. As shown in the screenshots below from our Trend Analyzer tool, these two sectors account for 46 of the 56 stocks in the S&P 500 that are oversold. The disparity between these two sectors and everything else is extreme, to say the least.
So what can we expect from the market following extreme readings in the percentage of stocks that are overbought? Our just published B.I.G. Tips report looks at prior periods where this reading reached extreme levels and shows how equities performed going forward. Get your hands on it now with a two-week free trial to Bespoke Premium!
For anyone interested in this report, check it out by signing up for a Bespoke Premium membership now!