US markets are heading up at full speed. Traditional methods for valuing stock prices have long been a signal of overbought stock markets, but quotes are only accelerating.
In November, the weakening of the American currency helped to strengthen the position of American stocks. The same factor largely stood behind their growth the day before. USDX fell on Thursday by 0.6%, becoming the key driver of the S&P 500 index growth, adding 0.72% over the same time.
Supporters of the rally say that behind the current increase in demand for stocks is a dramatic decrease in bond yields, as the main risk-free alternative to corporate securities. To a greater extent, the growth of indices is supported by purchases of index funds, which do not choose the best players, but bet on all shares of the index, which is considered an investment immediately in a diversified portfolio of shares.
As in cases where stock returns were also considered overvalued, it makes no sense for investors to try to guess the exact moment and level of reversal. You need to be on guard whether music plays in the financial markets.
The party continues, the festive mood is supported by low interest rates amid high and accelerating global economic growth. If you didn’t buy a bubble at the beginning or mid of the year, you probably were left far behind, missing the chance to make an impressive profit.
Will there be enough optimism before the end of this year? Probably yes. Will there be enough for the coming year? Unlikely. Currently, investors should pay attention to whether tax reform is progressing. Delays can harm markets, as they did in early November and August.
In addition, China should not be overlooked, where the authorities' desire to limit the debt burden can be fulfilled with excessive zeal, that is, too sharply.
We must not forget about macroeconomic data, including employment in the United States.
Technical analysis supports the idea of overbought, but so far does not give signals for a sale. Such signals for the S & P500 in the short term may be the fall of the RSI below 70 on the daily charts, the price goes below the upper Bollinger band. Talk about a larger correction will allow a fall below the 50-day average, which is now 2.7% below the current quote.
The beginning of a larger-scale collapse of the markets will be confirmed, perhaps, only by a failure under the 200-day average, which is 7% lower than current quotes.