Stocks Hold Steady, Overbought Indictors Flash Caution
US stocks began the Monday trading session in the red following Asian shares lower. Data in both China and Japan were weaker than expected generating negative sentiment toward equities. There are a number of technical readings on the S&P 500 index that are close to overbought territory, but the recent consolidation should keep equities stable. All three major averages closed underwater but well off session lows.
Chinese exports dropped 18.1% on year in February after expanding 10.6% in January and badly missed consensus of +6.8%. However, the trend may have been distorted by the Lunar New Year holiday and fake invoicing that boosted the data a year earlier, while the severe winter weather in the U.S. may also have had an effect. Still, the reading sent the Shanghai Composite tumbling 2.9% and helped drag other Asian indices lower.
Japan has revised down its fourth quarter GDP to 0.2% from an initial 0.3%, with the economy held back by weaker-than-estimated capital spending and consumer spending. The current-account deficit increased to a record 1.59 trillion yen in January from 638.6 billion in December. The Nikkei also moved lower losing slightly more than 1%.
The technical picture for the S&P 500 index shows that stocks are close to overbought territory. The relative strength index (RSI) is printing near 68, which is on the upper end of the neutral range and close to the 70 trigger level. As of Friday’s close nearly 81% of the stocks in the S&P 500 index were above their 50-day moving averages. Over the past year, this has occurred 5-times and in each of these circumstances the high level has foreshadowed a correction in price action.
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