According to this article from Bespoke, S&P 500’s Most Overbought Close in More Than a Year, the S&P 500 is extremely overbought.
The only problem is that I can’t seem to replicate Bespoke’s study.
No matter how I try, I get the S&P trading at approximately 1 Standard Deviation above the mean of the distance from its 50 Day Moving Average. I have converted the distance above/below the 50DMA into percentage terms, but that should not make a difference.
My attempt at replicating Bespoke’s study is below.
Index Indicators also performs similar studies. Their chart is below.
My results aren’t exactly the same as Index Indicator’s results, but they are closer than Bespoke’s.
Does anyone out there understand exactly what Bespoke is measuring?
Based on my study and the graph from Index Indicators, the S&P 500 is overbought, but it is nowhere near the most overbought close in more than a year.
Update: Based on the work Chris posted (see link in comments) replicating Bespoke’s study, the S&P 500 was indeed the most overbought in a year. I just disagree that this presages a pullback.
Read a follow-up post here.