The S&P500 just flashed a dangerous warning signal

For months, stock market pessimists have been saying US equities are overvalued.

And as of this past week, they have a major piece of tangible evidence.

The measure in question is the so-called relative strength indicator, which indicates when the stock market has gotten too stretched in either direction. An RSI measure exceeding 70 means the market is overbought and a downturn may be imminent. A drop below 30 indicates an oversold condition.

The RSI for the benchmark S&P 500 climbed above 70 last week and stayed in that overvalued territory for five straight days. The index's repeated climb to record highs is now in danger — at least if the past 12 months is any indication.

The RSI on the S&P 500 is above 70, signaling that the index is overbought and suggesting that a rocky road could be in store.

But this is not to say the 8-1/2-year bull market as we know it is in danger. Rather than a full-fledged sell-off, the past two instances of overstretched conditions in the past year have resulted in more of a consolidation period.

Source: BI
Trader-G.Bozhidarov

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