In the first chart below we have plotted the S&P 500 over the last six months. The light blue shading represents between one standard deviation above and below the S&P's 50-day moving average (white line). The red shading represents between one and two standard deviations above the 50-day, and moves into or above the red zone are considered overbought. While the S&P 500 finished down for a second straight week, the index remains in overbought territory. It also remains inside of its uptrend channel that has been in place since the early June lows.
On a short-term basis, underlying breadth for the S&P 500 as measured by its 10-day advance/decline line is actually oversold. The 10-day A/D line takes the average number of daily advancers minus decliners over the last ten days. When the index gets as oversold as it is now, we typically see a bounce. So even though the price level of the S&P is slightly overbought, the oversold 10-day A/D line opens up the door for a rally over the next week or so.
Looking for more market analysis from Bespoke? Become a Bespoke subscriber today to access our just released Week in Review newsletter.