Tuesday, June 21, 2011

Is the Stock Market Over Sold?

Consider the following chart from Bespoke Investment's Blog:

Here's the explanation:
The chart to the right summarizes where the S&P 500 and each of the ten sectors are trading relative to their normal trading ranges. For each sector, the circle represents where the sector is currently trading while the tail represents where the sector was trading one week ago. When the circle is in the pink or red area it is considered overbought, while the green areas indicate oversold levels.
I find the above chart interesting in comparison to the Treasury market. Consider these two charts:

While the bond market has benefited from increased concern about the EU area and the US' economic expansion, the upward rally has stalled for the last month-month and a half. While the inverse relationship between stocks and bonds is not perfect, it can be a telling indicator.