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S&P soars to new bull market high but 80% of stocks now overbought

by James Phillipps on Jan 23, 2013 at 08:44

S&P soars to new bull market high but 80% of stocks now overbought

The S&P 500 soared to another new bull market high yesterday, but chartists have warned that almost 80% of stocks are now overbought, increasing the chances of a pull-back.

Better than expected results from tech giants Google and IBM yesterday helped push the market up with the S&P 500 now having gained 4.52% year to date in dollar terms, its eleventh best ever start to a year.

But chartists at Bespoke Investment have highlighted that 79.6% of stocks are now overbought, the highest reading at any point over the last five years barring late October 2011.

‘Once the reading gets up to these lofty levels, it typically doesn't stay there long,’ the analysts warned.

The S&P 500 is now up 10.29% since its post-election low of November 15 but the Dow Jones Transportation index has been the standout performer in US equities. It is up 17.5% over the same period and is now 9.3% ahead of its 50-day moving average.

‘The last two times the transports index got this extended, it stalled out once it got to 10% above its 50-day, which isn't very far off from where it is now,’ Bespoke said.

So where next for the broader market? Up until Friday, of the 101 US companies that have reported their fourth quarter numbers, 60.2% beat analyst estimates on revenue and 59.4% exceeded expectations on earnings.

Yesterday Googleo outstripped expectations with its internet business delivering above consensus revenue growth while the decline in its advertising rates slowed. IBM announced stronger software sales and revenues than expected adding to the feelgood factor. All eyes now turn to stock market bellwether Apple, which reports late today.

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