The SPX will be significantly Overbought on a short-term basis when equity markets open this morning. This does not necessarily mean that equities will come falling back down into their recent “comfort zone” of 1305 – 1335, however. I’ve noted on several occasions this week that my expectations were for a print on the SPX in the mid-to-upper 1300s; it just may get there today.
For this move to be a healthy one, the SPX will need to establish a new range and foundation above 1335. This, of course, is both a function of time and price. As far as allocations go, it is a time to be cautious, but not fearful. Purchases made in the low 1300s (also recommended earlier this week) should be lightened up; a 3%+ return is to be protected.
Today’s levels: 1330 (Overbought) / 1313 (Oversold). Quantitatively, the Overbought level will move drastically higher tomorrow, but for now we can look to the June 19 high of 1363 as an indication. With the momentum behind this move, I expect that print to be overtaken in the next several days. The 10 Year Note currently yields 1.66%–this morning’s highs. That’s a substantial move, but 1.67% to 1.70% remain key levels which need to be broken for the SPX to remain above 1335.