Morning Comment: The stock market is getting overbought near-term.

Our morning comment yesterday was “short and sweet.” Well, today is going to be pretty short and sweet as well…for the simple reason that a lot of things could change after the employment report comes out later this morning. We’re not the only ones who are unsure of things in front of tis report. Yesterday’s range for the S&P 500 Index was the tightest of the year…and volume was quite low. Therefore, it looks like a lot of people decided to sit on their hands yesterday…and wait to see just how strong or weak the employment picture is this summer.

Of course, there will also be A LOT of focus on next week’s CPI and PPI number (on Wednesday and Thursday) as well, but since one of the Fed’s two main barometers is employment…and since they’ve been talking about the employment picture as one of the reasons why they will keep tightening going forward…today’s number should be a very important one.

There is little question that the Fed has spent A LOT of time this week trying to move the narrative away from a near-term pivot by the Fed. As we highlighted yesterday, the stock market does not believe this recent “Fed speak” one bit. Therefore, if this morning’s employment data is strong, investors will have to reassess their stance at least somewhat. If, however, the data is quite weak, it will likely embolden their opinion that the Fed will indeed become much more dovish in the coming months.

We must say, however, that even if we see a positive number for the stock market…the market seems to be getting ripe for a short-term pullback. In other words, even if we see a weak number…which is seen as “bad is good” for the stock market…the upside for the market might be limited over the near-term. Sure, if the data is bullish for the stock market, we could see a quick move up to the 4,200 level on the S&P 500. In fact, we might even get there today. However, the stock market is getting a bit overbought on a short-term basis, so investors should be careful about assuming that any near-term upside follow-through will be dramatic.

We don’t mean to overstate this overbought condition. The RSI on the S&P 500 and the NDX 100 are not extremely overbought…like they were back in November of last year. However, the reading on the RSI chart is at the same level we saw in March…just before the market rolled-back over. (It’s more overbought than it was in March for the NDX.) It’s also more overbought than it was at the high in June…..Therefore, even if the data this morning is market friendly…and even if we rally today…the stock market is getting ripe for a short-term pullback (or at least a breather)…at some point soon.

Of course, if today’s report is quite unfriendly, the decline could be a bit stronger…..However, what we’re saying is that even if you do not believe that this current rally is a bear market rally (like we do), you should be a little bit careful about chasing it over the next week or so. The S&P 500 is up 13% in less than two months…and the NDX is up almost 20% over that time! No market moves in a straight line. Therefore, even if you’re looking for the market to close at new all-time highs before the year is over, you should realize that its normal (and healthy) for all rallies…if they take a breather every once in a while…in order to digest their gains.

Matthew J. Maley

Chief Market Strategist

Miller Tabak + Co., LLC

Founder, The Maley Report

275 Grove St. Suite 2-400

Newton, MA 02466


Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.

Posted to The Maley Report on Aug 05, 2022 — 8:08 AM
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