S&P 500 In Overbought Territory

  • Stock Market Analysis
  • Editor's Pick

Stocks rallied last Friday, with the S&P 500 finishing higher by 1.7% to close around 4,280. At this point, the index has risen into overbought territory with an RSI now 71 and at the upper end of its Bollinger band.

Additionally, there continues to be a rising wedge pattern in the index, but one that is a bit wider than how I initially drew it out. These things are formidable to gauge to something, and the rising wedge in the RSI seems to confirm that the rising wedge in the S&P 500 continues to exist.

S&P 500 Index, Daily Chart

Additionally, the index is now within 20 points of closing a gap from May 4. That gap could offer plenty of resistance should the index open higher today and push higher. Regardless, I still think we will likely see a significant pullback to the 3,950 region over the next couple of weeks. The 3950 would be around 61.8% retracement should we top out between 4,280 and 4,300.

S&P 500 Index, 1-Hr Chart


The VIX and VVIX divergence grows wider, and I am curious to see how much longer this plays out. There appears to be some normalization process, as the ratio of the VIX to VVIX is coming down quickly now, and appears to be on the path to return to the previous uptrend that had been placed. I think this “normalization” process should continue a bit more, but at the same time, I also think it is near its end.

VIX/VVIX Ratio Daily Chart


Bitcoin has managed to hold up much than I thought it might, but the outlook appears to be the same. A rising wedge pattern is forming within the bear flag pattern, strengthening the case for this fall lower and potential test 16,400.

BTC/USD Daily Chart


Apple's (NASDAQ: AAPL ) rally seems overdone. I’m happy to see it rise, as I have owned the stock for years. But it looks unrealistic, especially following an earnings report and guidance that didn’t appear to be among the company’s best. The shares are overbought with an RSI over 70 and approaching its upper Bollinger band. A fill of the gap back to $156 doesn’t seem that hard to believe to me.

Apple Inc, Daily Chart


NVIDIA (NASDAQ: NVDA ) gapped below an uptrend, and that is generally very bearish. At this point, it appears to be either revisiting the breakdown or attempting to fill the gap. Either way, the stock looks like it doesn’t have much upside left. The revenue shortfall was significant, and once unless it gives better than expected guidance when they report results, I don’t see how any rally is sustainable.

NVIDIA Daily Chart


Cisco (NASDAQ: CSCO ) is in the process of filling a gap from May, and it would be disappointing for the stock not to fill that gap at $48.45, especially given how far it has come in recent weeks. They will report results this week, and those results will probably be a determining factor in what happens next.

Cisco Systems Daily Chart

Original Post

Drop an image here or Supported formats: *.jpg, *.png, *.gif up to 5mb

Error: File type not supported

Drop an image here or