Source: Jin10 Data
Jefferies Financial emphasizes that RSI sends different signals to short-term traders and long-term investors.
For those who are bullish on the stock market, the good news is that the upcoming seasonal factors are supportive.
Jonathan Krinsky, a technical strategist at BTIG, said that the Invesco QQQ Trust Series I exchange-traded fund, which tracks the Nasdaq 100 index, has risen continuously for the past 16 Julys. According to foreign media calculations, the average increase in July during this period was 4.62%.
In addition, Krinsky pointed out that the Nasdaq 100 index has not experienced a single-day drop of 2.5% or more for 379 consecutive days, which is the longest record in history.
However, this strong market optimism has made some observers and investors worried that when the sentiment does eventually turn, it could be painful. Krinsky warned that when the Nasdaq 100 index ended its two longest rising streaks in the past, it experienced declines of 16% and 18%, respectively.
"We wouldn't be surprised if the Nasdaq 100 index falls 2.5% someday."
Another data point that indicates a bullish tone in US stocks comes from analysts at Jefferies Financial, who say that the market is "too optimistic this year." The S&P 500 index has recorded a percentage of rising days of 56%, higher than its historical average of 52%.
Jefferies also acknowledges that such optimism may cause concern among those who are wary of excessive optimism. "There seems to be a little unease lately between higher 'win rates' and still-low VIX," said a report by Jefferies strategists.
However, they added: "This usually suggests there may be further upside to equity markets."
Jefferies discussed the message conveyed by the 14-day relative strength index (RSI), one of the most watched technical indicators in the market. RSI is a momentum indicator, with a reading above 70 considered to be in overbought territory and below 30 considered oversold.
Jefferies noted that the RSI for the S&P 500 index rose above 70 in mid-month and remained at that level for seven consecutive trading days, marking the longest overbought phase since December 2023.
"Bears may see it as a sell signal, but Jefferies emphasized that the RSI sends different signals to short-term traders and long-term investors."
Jefferies pointed out that "historically, the overbought 14-day RSI may be a mild near-term performance signal for the S&P 500 index, but it often makes an excellent longer-term signal."
They calculated the data and found that since 1990, when the RSI reaches 70, the S&P 500 index has averaged a performance of only 0.06% over five days, and has risen 58% of the time.
However, in the following 12 months, the S&P 500 index has averaged a 12% increase and has risen 88% of the time. Jefferies said, "It's hard to be fearful of that."
Editor/Lambor