Bye Bye Overbought

With today’s big decline for the S&P 500, the index has moved out of overbought territory and back into its “normal” trading range.  (The index is overbought when it is trading more than one standard deviation above its 50-day moving average.)  Below is a chart showing this move out of overbought (red) territory.

Remarkably, the S&P had closed in overbought territory for the prior 43 trading days, which goes back to the very last day of 2011.  In the S&P 500’s history, the index has closed in overbought territory for 40 consecutive days or more just 26 times.  Below we highlight all of the S&P’s streaks of trading in overbought territory for 40 days or more.  For each period, we highlight the number of days the streak lasted along with how the index traded in the week, month, and three months following the first day that it moved below overbought territory.

As shown, the S&P has done...

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