What We’re Watching as the Market Nears Overbought Territory
Let's take a close look at where we stand with the S&P 500, Nasdaq, Fear & Greed Index and VIX, and what's on our radar at this important juncture.
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We have witnessed quite a move in the stock market since its recent bottom in early April — and that same move has led the Pro Portfolio to bounce back into positive territory. All told, the S&P 500 has climbed almost 22% and the Nasdaq Composite close to a staggering 30% in what some would call a rather compressed period.
We all know the headline drama around tariffs and the economy that hit the market in late March and early April. As those fears and concerns have been dialed back, and progress on trade deals emerged, the stock market made quick work of rocketing higher back toward late February-early March levels. However, those welcome developments now have the S&P 500 careening toward once again being overbought.
The Nasdaq Composite? We're already there based on its relative strength index (RSI) level of 70.70 with last night’s market close.
And with those conditions, it should come as little surprise that the Fear & Greed Index is back deep in “Greed” territory.
And lest we forget, volatility has sold off hard as well. While not quite at complacent levels, it’s something we’re keeping our eyes on.
You can see in the charts above, the market can push higher into oversold territory. With President Trump saying the U.S. is close to deals with Iran and India, that is quite possible. Lessons from the past should remind us that the higher the market’s RSI levels become, the more likely we will see a pullback in the market. Or at least some of the developing froth removed.
The glass half full view would say that would be a potential opportunity to put some cash to work. But we also know we are on the cusp of some meaningful updates as retailers report their quarterly results and company investor conference presentations bring incremental color on the current quarter, their thinking on tariff and trade developments, and potential insight into the second half of 2025. Those learnings have the potential to push the market even higher in the short term, but they could also give it an excuse to give back some of the quick gains we discussed above.
In yesterday’s TheStreet Pro Quarterly Meeting, we discussed how the market could be setting up to repeat what we saw in H2 July-H1 September of last year before moving higher. To get there, though, we will have to navigate those retailer earnings, investor conference comments, and what Fed Chair Powell's says about today’s post-April inflation data. We’ll also need to see tangible progress on trade deals and, most likely, progress on tax reform as well, a combination that will remove even more uncertainty in the market and potentially bring more confidence in EPS growth prospects for H2 2025 EPS.
As we drink in today’s developments and those in the coming days, we’ll continue to watch RSI levels for the Pro Portfolio’s holdings. If signs point to prudent near-term action being warranted, we’ll balance that decision against longer-term upside potential and the impact of known upcoming catalysts — and that brings us back to investor conference comments this week and next.
