KEY
TAKEAWAYS
- Overbought is simply one other time period for sturdy. RSI above 70 reveals sturdy upside momentum, which his bullish. Shares can change into overbought (sturdy) and stay sturdy.
Momentum and pattern methods are off to a roaring begin right here in 2024. As a rule, these methods purchase main shares that seem overbought. Shopping for shares that seem overbought typically goes towards our “intestine really feel”, however overbought circumstances mirror sturdy shopping for strain and that is clearly extra bullish than bearish. Let us take a look at latest examples utilizing the broader market and UBER.
Shares surged in early November with an S&P 1500 Zweig Breadth Thrust sign and gave the impression to be overbought by the tip of November. The S&P 500 and Nasdaq 100 have been up 8.9 and 11.4 p.c, respectively. TrendInvestorPro’s Composite Breadth Mannequin then turned bullish in early December and shares once more appeared overbought in late December. The S&P 500 was up 4.4% and the Nasdaq 100 was up 5.5% in December. Observe that the Composite Breadth Mannequin is 14 indicator breadth mannequin used for broad market timing a TrendInvestorPro.
Regardless of massive strikes in November and December, shares didn’t cease rising on the finish of 2023. As an alternative, the advance continued in January-February with the Nasdaq 100 main. This advance then broadened out in March with the S&P 500 taking the lead. The Nasdaq 100 rose 1.2% in March and the S&P 500 surged 3.1% this month. Once more, the market seems to be overbought and ripe for a correction interval. Whereas I can’t argue with this evaluation, I can’t predict a pullback, particularly in a robust uptrend. There shall be a correction in some unspecified time in the future, however I have no idea when. Maybe we must always cease utilizing the time period “overbought” when the pattern is up and settle for overbought circumstances at face worth. Overbought is de facto simply one other means of claiming “sturdy”.
Twin Momentum Rotation methods are designed to reap the benefits of main shares with sturdy worth strikes. The methodology buys the highest performing shares and sells after they drop beneath a sure rank. The chart beneath reveals a commerce instance utilizing Uber Applied sciences (UBER). UBER entered the mannequin portfolio as a high ranked inventory on February fifth, and RSI was above 70 (inexperienced vertical line). RSI is taken into account overbought when above 70. In fact, a transfer above 70 displays sturdy upside momentum and that is extra bullish than bearish. Worth moved increased and UBER’s rank then dropped by the tip of March (purple line). UBER not made the lower and this triggered an exit sign.
Specializing in the strongest shares throughout the Nasdaq 100 and S&P 500, the Twin Momentum Rotation Methods at TrendInvestorPro are up double digits to this point this 12 months. Watch out chasing efficiency as a result of it’s not all roses when buying and selling the leaders and there shall be drawdowns alongside the way in which. These methods have been down in 2022, they recovered properly in 2023 and there have been additionally drawdowns in 2023 (September). These methods are totally systematic and commerce on a weekly foundation. Rankings and alerts are posted each Saturday morning for subscribers. Click on right here to see efficiency metrics and be taught extra.
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Arthur Hill, CMT, is the Chief Technical Strategist at TrendInvestorPro.com. Focusing predominantly on US equities and ETFs, his systematic method of figuring out pattern, discovering alerts throughout the pattern, and setting key worth ranges has made him an esteemed market technician. Arthur has written articles for quite a few monetary publications together with Barrons and Shares & Commodities Journal. Along with his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Enterprise College at Metropolis College in London.
