Still Overbought – When Will The Rain Come?

It’s only rained once in the last month where I live. While we all love the sun and warmth of the summer, no rain is tough on the landscape. Rain is healthy for flowers, grass, ponds, and lakes, even if it means we are stuck inside for a day or two.

Bullish investors love it when the sun shines on stock prices, too. Much like a lack of rain can be unhealthy for the landscape, straight up can be unhealthy for the market too. Some profit taking can be the best option for bulls too. Like a rubber band, the more prices get stretched, the more likely the market will snap and not regain its shape.

Like last week, the NASDAQ remains elevated based on its Relative Strength Index (RSI). Monday’s RSI reading of 72.72 puts it firmly above an “overbought’ reading of 70. Often, scores of 70 and above don’t last long and stocks take a hit. However, there are periods when the NASDAQ can hover in elevated levels for extended periods. Eventually sellers will show up, and when they do, stocks usually take a solid gut punch.

For now, investors might be best suited to bask in the heatwave with an umbrella handy. The sooner it rains the better. It would set the stage for the next level up and green the landscape.


In a sign rain could be coming, SPDR S&P 500 ETF Trust (SPY) outperformed Invesco QQQ Trust (QQQ) last week. It was the first time in a while the senior index topped the tech-dominated NASDAQ. As regular readers know, it’s our view that stocks do best when the NASDAQ pulls the cart.

Bank stocks and Retail lit up our sector/industry performance leaderboard last week. The top three spots went to banks, starting with First Trust NASDAQ ABA Community Bank Index Fund (QABA), SPDR S&P Regional Banking ETF (KRE), and SPDR S&P Bank ETF (KBE).

KRE is our favorite of the bunch as it settled into some technical support around $43. If the sector continues to regain its health, the 200-day average of $54.51 looks like a logical destination, according to our technical analysis. A close below $38, and we’d consider cutting losses.


As much as we’d like to take a position in a regional bank stock, we’d prefer the comfort of a diversified exchange-traded fund (ETF) like KRE. An individual stock could take a bigger hit than KRE if the NASDAQ’s overbought position attracts some profit taking.

Rich Meyers