In a Hot Market Laggards CSCO, NATI Look to Perk Up

The market is hot, hot, hot. Should you be worried? Not if you are long term investor.
Short-term, on the other hand, could be a little bumpy, next month in particular.

The weekly market momentum is overbought (relative strength index > 75). Standard & Poor’s 500 Index price trends are well advanced above widely followed metrics such as the 50- and 200-day moving averages. Weekly momentum indicators, which track 1-2 quarter shifts, are in overbought territory, raising concerns that a peak is imminent.

On the one hand, I agree that many stocks are simply not timely to be adding new capital. While I would definitely not ignore the risk of a pullback, I would also point out that these high momentum readings have not historically signaled an imminent correction. For the record, there have been 59 instances of weekly RSI climbing above 75 since June of 1950, but the interesting point is that the S&P was higher 74% of the time 10-weeks later by an average of 2.16% and 76% of the time 20-weeks later by an average of 4.86%. That doesn’t mean we don’t have a pullback in between.

These factors don’t reduce the risk of a correction but they do reinforce the technical adage that strong trending markets often remain overbought for extended periods.
What should an investor do given market leading stocks such as Apple (AAPL) is up 86%, yes 86%, from June lows, and Microsoft (MSFT) 40% over the same time.

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