Stock Investors Are Showing Extreme Greed

Stock Investors – Slight Selloff On Friday

The optimism about the trade war is way overdone. New tariffs make it more likely there will be an economic slowdown in late 2018 and early 2019.

The stock market is also way overbought even after the mild decline on Friday. The Dow was the only index that was up as it increased 0.32% to a new record. The S&P 500 fell 4 basis points, the Nasdaq fell 0.51%, and the Russell 2000 fell 0.46%.

As the action in the first week of September stops being included in the 14-day RSI, it will go up sharply if stocks don’t fall.

As you can see from the chart below, the 14-day RSI is 69.6 which is just 0.4 away from being overbought. If stocks are even slightly positive next week, it will surpass the August high.

Even though the S&P 500 fell slightly, the CNN Fear and Greed index hit 75 which is extreme greed. I’m very bearish on stocks in the near term because they have run too much and the tariffs are being ignored.

Twitter and Micron were among the biggest losers in the S&P 500 as they fell 4.5% and 2.9%. The biggest winners were IPG Photonics and American Airlines which rose 4.2% and 4.1%.

The best sectors were energy and telecom as they increased by 0.72% and 0.98%. Tech and financials were the worst hit as they fell 0.34% and 0.36%. This is the last day tech will have its current makeup and it’s the last day the telecom sector will exist.

While the financials aren’t at their January high, they have increased 9.03% from June 27th. I was correct in saying the financials needed to power the market higher.

Stock Investors – Positive Real Yields Coming Soon

Just like the market, the 10-year yield was flat at 3.06%. The yield peaked at 3.08% in the morning as it is trying to reach its cycle high, but has been failing recently. It will be a big technical break out for it to get above 3.11% just like it was a big deal for the S&P 500 to hit a new record high in August.