Four Days in a Row and Counting for the S&P 500…
Figure 1- S&P 500 Large Cap Index $SPX
Have you ever rooted so hard for a team that can frustrate and excite you at the same time? Rip off a 4-day winning streak, followed by a slump of losing 5 out of 6 games, then come back with another winning streak? Does it have you questioning if the team is outstanding or a mirage?
If I could compare the S&P 500 to a team, it would probably be the Philadelphia 76ers.
This index looks like a winner and seemingly rips off multiple-day winning streaks weekly. Now and then, though, it can show inconsistency, make you scratch your head, and go on a frustrating losing streak.
Two weeks ago, the S&P was hovering around a record-high. Its forward P/E ratio was the highest since the dot-com bust, and the RSI consistently approached overbought levels.
By the end of last week, it was nearly oversold.
Now, this week? Its RSI is back above 60, we’re at another record high, we’re on a four-day winning streak (which could be five if futures remain in the green), and we’re at a forward 12-month P/E ratio at nearly 22 and well above the 10-year average of 15.8.
I said before that once the S&P approaches a 3600-level, we can start talking about it as a BUY. Well, the index came pretty darn close to it last week, but it wasn’t enough for me. Despite this week’s rally, short-term concerns remain, with long-term optimism.
To me, because of the RSI and how the index has traded, it remains a HOLD. But we’re teet
A short-term correction could inevitably occur by the end of Q1 2021, but for now, I am sticking with the S&P as a HOLD.
For an ETF that attempts to directly correlate with the performance of the S&P, the SPDR S&P ETF (SPY) is a good option.
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Matthew Levy, CFA
Stock Trading Strategist
Sunshine Profits: Effective Investment through Diligence & Care
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