Stock Market Is Overbought

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Stock Market Is Overbought

Is The Us Stock Market Overbought?

The AI hype has pushed the US stock market to new highs, and not everyone is wondering if the markets are overbought. The short answer is yes, the stock market is definitely overbought.

If we look back, the indicators have been hinting at overbought conditions since the start of summer. But even today, the markets continue to climb, which shows that there is no end in sight yet.

Unrealistic Valuations Of Many Stocks

However, this also means that if you get stuck buying at the top and the markets reverse, it would be a big problem. That's why many investors are now waiting on the sidelines and waiting for the markets to go through a healthy correction.

The Shiller PE also shows that such high valuations were only last seen during the late 1800s. This indicator alone is a sign that caution is needed, as even a single catalyst would send the markets lower.

But just because the market is overbought doesn't automatically mean that it will lead to selling. After all, markets can stay in overbought conditions for months and even years in many cases.

So, the bottom line is that if you are willing to ride through minor corrections, continue to buy the stocks. But, if you are near retirement, then you shouldn't buy the stocks while they are near ATHs.

In addition, an indicator from SPY, which shows the overbought and oversold conditions, also shows that markets will remain range-bound. It will stay like that until a new catalyst brings back the bullish sentiment.

For now, the market is very bullish, and it is mainly fueled by the tech stocks and especially the AI boom. But if we see some correction in even the AI stocks, it would be enough to push the S&P 500 and other US markets down.

The bottom line is that the US stock market is overbought, and the valuations are lofty. So, if you don't want to deal with a long period of drawdown, it's best to wait on the sidelines.

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