The stock market’s rally to record levels could be in trouble, according to Cantor Fitzgerald. The S & P 500’s 14-day relative strength index, or RSI, closed above 81 on Wednesday. This coincided with the S & P 500 closing above 5,600 for the first time. An RSI above 70 indicates an asset is overbought, which could signal it’s due for a pullback. A reading below 30 points to oversold conditions for an asset — which tend to precede a bounce. The RSI gauge ranges between zero and 100. The S & P 500 has closed with an RSI above 81 only 12 other times in the last 40 years, Cantor head of equity derivatives Eric Johnston pointed out. Those instances have historically been followed by sharp declines for the broad market index. After entering such overbought conditions, the S & P 500 has averaged a decline of 2.21% in the following 15 days, Johnston’s data shows. Twenty days out, the benchmark has fallen 1.27% on average. He added that 50% of the time, the drawdown over the next month was at least 3%, while 25% of the time the index fell at least 6%. Traders took some profits off the table on Thursday, with the S & P 500 losing 0.9% — pulling back from the all-time highs reached in the previous session.
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