Wednesday, February 28, 2024

How extended is this market?

Mid-week market update: I have said before that the stock market is extended in its advance and it could pull back at any time. How extended? Here is another metric.
Bollinger Bands (BB) are overbought/oversold indicators. If a stock or index rises above its 2 standard deviation BB. it is said to be overbought. Standard calculations of BBs are based on a 20 dma. It's unusual to see the market rise up above its upper 200 dma BB. The S&P 500 recently reached 110% above of its upper BB. The history of such episodes (pink bars) show that it usually pulls back soon afterwards. There were only two exceptions since 1997 when the market experienced a sustained uptrend (shown by arrows).

The full post can be found here.

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