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“College isn’t the place to go for ideas.” – Helen Keller

Morning stock market summary

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While stocks have traded heavily over the last several trading days, the weakness hasn’t been enough (yet) to move the Nasdaq out of overbought territory (one or more standard deviations above its 50-day moving average).  As shown in the chart below, Monday was the 34th consecutive trading day that the Nasdaq closed at overbought levels.

That sounds like a long stretch, but for the Nasdaq it is not especially uncommon to trade at overbought levels for an extended period.  Since the start of 2013, for example, there have been six other periods where it traded at overbought levels for at least six weeks, and the longest was over ten weeks back in early 2021. For the Nasdaq’s entire history, there have been even longer streaks.  In 1997, for example, there were 69 straight days of overbought readings, and back in September 1980, the Nasdaq traded at overbought levels for 95 straight trading days- that’s almost five months!

Naturally, when you see such an extended streak of overbought readings, it’s natural to expect a pullback.  After all, stocks can’t go up forever.  But if all it took to anticipate a pullback was an extended streak of overbought readings, we’d all be rich.  In the chart below, we show a chart of the Nasdaq since the start of 2013 and have included red dots to show each time it traded at overbought levels for 30 straight trading days.  In a number of these periods, the market kept rallying with little in the way of a pullback, and the only period where a significant pullback was almost immediate was after the January 2021 streak.  But even then, the streak lasted more than another month before the Nasdaq was no longer overbought again.

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