4 Signs Stocks Are Overbought at Historic Levels
- Stocks continue to hit fresh highs following a brief September pullback.
- Despite the bullishness, RIA Advisors’ Lance Roberts is warning investors to proceed with caution.
- He highlighted a few indicators showing how precarious a position stocks are in.
It wouldn’t be fair to classify Lance Roberts as the type of doomsday perma-bear who drones on for years about an impending crash, all the while missing out on massive market appreciation.
In fact, Roberts actually recommends staying in stocks at the moment, though perhaps taking some profits.
But it wouldn’t exactly be fair to classify Roberts, the chief strategist at RIA Advisors, as bullish, either. Roberts is warning of heightened risk for investors given where valuations are, a perspective driven by rampant speculation reminiscent of market bubbles throughout history that preceded large crashes.
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In a November 9 note, Roberts highlighted four signals that investor euphoria has gone too far — likely indicating that a significant pullback is ahead for stocks.
4 signals investor euphoria is setting the market up for a decline
First, investors have completely shrugged off the 5% pullback in September, pushing stocks further above their 36-month moving average than they’ve ever been. Relative strength, shown at the bottom of the graph, is also extended.
“Over the last month, investors pushed the stock market to extremely overbought, extended, and deviated levels. Currently, the deviation from the long-term bullish monthly moving average is at the most extreme since 1997,” Roberts said in the note. “Furthermore, the stock market is now highly overbought, which has typically preceded more significant market corrections.”