Monday Morning Outlook
Read This Before You Try to Buy the Dip
Did we just get another Greenspan sell signal?
by Todd Salamone
Published on Feb 5, 2018 at 8:51 AM
"Another headline that took me back to the mid-1990s was the one describing the longest overbought streak in 21 years. On Friday, the SPX's 14-day Relative Strength Index (RSI) was above 70 for the 17th straight day. According to the Bloomberg article, the last time the index had an 'overbought' streak like this was 18 days in November-December 1996...This overbought streak may be worth watching in the days ahead, as a near 4% pullback occurred after the 1996 RSI streak above 70 ended after 18 days. This short-term pullback was around the same time that then-presiding Fed Chair Alan Greenspan uttered 'irrational exuberance' in a speech."
-- Monday Morning Outlook, January 29, 2018
"Former Fed Chair Alan Greenspan Sees Bubbles in Stocks and Bonds"
-- Bloomberg, January 31, 2018
Last week, I concluded my commentary discussing the "overbought" streak in the S&P 500 Index (SPX - 2,762.13). Of the multiple concerns being broadcast by strategists and money managers, I thought that this indicator was one worth watching, based on history. As it turned out, on Tuesday of last week, the SPX's 14-day Relative Strength Index (RSI) finally dipped below 70 for the first time in 18 trading days, eerily similar to the 18-day streak in November and December 1996.
Just one day later, another echo of 1996 surfaced, with former Fed Chair Alan Greenspan telling Bloomberg Television, "There are two bubbles: We have a stock market bubble, and we have a bond market bubble."
On the heels of these two developments, short-term bears hope that we get a repeat of early December 1996, when the SPX went on to decline another 4% after its RSI moved back below 70 and Greenspan uttered "irrational exuberance." A 4% decline from last Tuesday's close would push the SPX to 2,709, roughly 30 points above its 2017 close.
That said, bulls hope that the "stock bubble" Greenspan described lasts about as long as the "irrational exuberance" that he observed in 1996, as the bull market lasted nearly three and a half more years before peaking in March 2000.
continues at schaeffersresearch.com |
