It took a few months, but equity markets have finally made it back into overbought territory. You can easily see this from the Trend Analyzer snapshot below.
Our Trend Analyzer allows users to easily see how well (or poorly) stocks or ETFs are trading relative to their 50-day moving averages. It’s a useful tool when trying to get a gauge on trends of the overall market, and it also helps investors identify potential buy and sell opportunities on an individual security basis.
In the Trading Range section of the snapshot below, the dot represents where the ETF is currently trading relative to its 50-day moving average. The tail end of the dot represents where it was trading one week ago. The red shading in the Trading Range section represents overbought territory, so when the dot moves up into the red zone, it means the ETF has moved well above its 50-day up to levels that are considered extended. The theory is that over time prices eventually revert to the mean as they trend in either sideways, upwards, or downward patterns. When price gets extremely overbought, it may be best to wait for downside mean reversion to occur before entering into a long position.
As you can see, every single US Index ETF (across market cap levels) in our Trend Analyzer began the day trading well into overbought territory. In 2017, overbought trading was extremely common, but we haven’t seen this kind of across-the-board “overboughtness” in a few months now since the correction began at the end of January.
You can learn more about how and why you should be using our Trend Analyzer tool here. If there are specific stocks or ETFs that you’d like to monitor, you can even set up custom Trend Analyzer portfolios!