Overbought The Entire Month of December

Barring a decline of 1.2% today, the S&P 500 will have traded in overbought territory (>1 standard deviation above its 50-day moving average) for the entire month of December.  Going back to 1928, there have only been seven other Decembers where the S&P 500 (or its earlier iterations) finished every day of the month in overbought territory.  The last time this occurred was back in December 1990.  In the table below, we highlight each of those months as well as the index's performance going forward.  As shown, extended periods of overbought levels haven't necessarily been such a bad thing.  Of the seven occurrences, there were only two periods where the S&P 500 saw declines in the following January.

Overall, this December would be the 71st time that the S&P 500 closed at overbought levels in every day of a given month.  Interestingly, while one would expect a reversion to the mean following these overbought periods, the opposite tends to occur.  In the month after these periods, the S&P 500 averages a gain of 1.52% with positive returns 67.6% of the time.  This is considerably better than the 0.58% average S&P 500 return for all months.

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