Many technical analysts on the Street are highlighting the risk of a pullback for equities given short-term technical indicators have moved into overbought territory.

The mistake here, in my opinion, is obsessing over short-term trading indicators when there is a much bigger bullish trend just getting underway. In other words, don’t lose sight of the forest, or the longer-term bullish market cycle, for the trees, the shorterterm noise emanating from the media and Twitterati. The key point is that in strong uptrends, which I see developing here, trading indicators can stay overbought for extended periods, leaving investors who don’t participate staring at the back of the train as it leaves the station.

The chart below illustrates the Standard & Poor’s 500 index price in the top panel and its short-term 14-day relative strength index (RSI) momentum in the bottom. There are two important points both traders and investors should consider. First, the S&P is in the early stages of breaking out of a broad trading range dating back to the middle of 2018 and arguably back to Q1 2018.

Second, after the 5% or so surge in October into November, it’s not surprising to see the daily RSI momentum in the bottom panel become overbought. But should you follow the gloomy h...

Unlock this article with a FREE 30-Day Trial!

An FSI Pro, or FSI Macro subscription is required in order to access this content.

*Free trial available only on a monthly plan

Disclosures (show)

Get invaluable analysis of the market and stocks. Cancel at any time. Start Free Trial

Articles Read 2/2

🎁 Unlock 1 extra article by joining our Community!

You’ve reached your limit of 2 free monthly articles. Please enter your email to unlock 1 more articles.

Already have an account? Sign In

Don't Miss Out
First Month Free