Many funds seem overbought.

[Chahta]

Looking at the RSI for my holdings, it seems that everything is close to or overbought. How does a holding become a better buy in this condition? Is overbought only going to become a better buy by correcting? As primarily a B&H investor does it even matter?

I am looking at one holding to trade out to a lower price since I want to have the best cost basis I can on this holding. To me I consider that important for bond funds especially.

[steelpony10]

Chahta ,

      In a high inflation environment where the Fed is trying to slow earnings growth (probably with layoff’s) you might not have to wait very long for the big plunge in values.

       You have your choice of 2 old school paths, “this time it’s different” and “irrational exuberance”.  My favorite is “revert to the mean” which has always happened somewhere down the line. I tilt towards irrational exuberance.

        Upward price direction doesn’t match downward earnings pressure. Those two factors usually follow the same direction although one can get ahead of the other but never in opposite directions long.

[FD1000]

Mar 5, 2024 15:15:37 GMT Chahta said:

Looking at the RSI for my holdings, it seems that everything is close to or overbought. How does a holding become a better buy in this condition? Is overbought only going to become a better buy by correcting? As primarily a B&H investor does it even matter? I am looking at one holding to trade out to a lower price since I want to have the best cost basis I can. To me I consider that important for bond funds especially.

Sorry to say but overbought can stay at that level for months, especially for bond funds.  Example: If you followed RSI for RSIIX/RSIVX you would sell months ago.(schrts.co/tzxQIbBp)

As primarily a B&H investor does it even matter? no.
I know the problem, when everything look great, you want to do something. When it looks bad, you are too late. Either you are a B&H or a good trader, otherwise don't trade.

================

Pony "revert to the mean"?

mmm...QQQ vs VTV, EEM since 2010 shows there is no reversion to the mean yet after 14 year and that's a long time to wait. QQQ made 18+% average annually and that means “this time it’s different” because 14 years is a long time.

(www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=3ORJHmAQsBzGho8bq4er6r)

QQQ made more than double of VTV(value) and 9 times EEM.
Of course, the reversion could start any time.

Attachments:

[Mustang]

Overbought? More than a little (eg., NVIDIA's P/E ratio as of today is 72.52.) I have seen on business news two experts say that it is too late to buy. That probably applies to all tech stocks. I am not a student of the market but this feels more like a bubble than a trend. Short term, the market is based on herd mentality. If something goes up then everyone has to buy. Buy and hold (5-10 years) investors should be more concerned with fundamentals

[rhythmmethod]

I have no idea if it is overbought or just beginning to climb. I guess it's overbought. Regardless, I'm trimming profits to cash-producing vehicles because of my personal needs, not a hypothetical game of chicken with other investors. Turning growth into income is my version of turning water into wine. Good luck!

[yakers]

Overbought but by how much?, what to do ?, and when? B&H is long term so best to do nothing and stay to the plan. Hard to do when things are going well, poorly or anytime. Bulk of my assets are index funds and balanced funds, a couple stocks I follow and buy when they go low. Cash is building up but right now thats an OK place to be. Check my AA once a year and ony make small adjustments via RMDs/QCDs.

[retiredat48]

Mar 5, 2024 17:57:56 GMT Mustang said:

Overbought? More than a little (eg., NVIDIA's P/E ratio as of today is 72.52.) I have seen on business news two experts say that it is too late to buy. That probably applies to all tech stocks. I am not a student of the market but this feels more like a bubble than a trend. Short term, the market is based on herd mentality. If something goes up then everyone has to buy. Buy and hold (5-10 years) investors should be more concerned with fundamentals

Is this a backward looking PE?  What about forward next year earnings estimate PE?

We already know the current qtrly earnings were huge, and the forward guidance is they cannot even fill all the back-orders.

R48

[Mustang]

Mar 5, 2024 20:00:10 GMT retiredat48 said:

Mar 5, 2024 17:57:56 GMT Mustang said:

Overbought? More than a little (eg., NVIDIA's P/E ratio as of today is 72.52.) I have seen on business news two experts say that it is too late to buy. That probably applies to all tech stocks. I am not a student of the market but this feels more like a bubble than a trend. Short term, the market is based on herd mentality. If something goes up then everyone has to buy. Buy and hold (5-10 years) investors should be more concerned with fundamentals

Is this a backward looking PE?  What about forward next year earnings estimate PE?

We already know the current qtrly earnings were huge, and the forward guidance is they cannot even fill all the back-orders.

R48

A guest on the business channel said 66 a couple of days ago.  It has changed a little since I looked it up.  ycharts.com/companies/NVDA/pe_ratio

[yogibearbull]

Mustang, retiredat48, for Nvidia/NVDA,

Yahoo Finance trailing P/E 68.98, fwd P/E 34.25, EV/EBITDA 59.47
M* trailing P/E 66.82, fwd P/E 34.64, EV/EBITDA 60.95

[retiredat48]

So, the forward PE is only one half the backward one. And Nvidia increase in earnings was not some one-of-a-kind event; the AI related sales were real...and continuing. So is PE 34 too high? In the dot com bubble year, PEs of many internet-related companies got above 100. And of course with companies without any earnings, PEs were infinity.

R48

[yogibearbull]

Valuation is multidimensional. Trailing or fwd P/E is only one metric.

If one has money to buy whole companies, EV/EBITDA is the metric to use, so for sure, Warren Buffett won't buy NVDA at EV/EBITDA of around 60   .

P/S of 33.69 is another and for $2+ trillion co, that is no joke (for startups, may be OK).

Barron's recently said that even within Magnificent 7, NVDA is in a class by itself.

NVDA at Yahoo Finance  finance.yahoo.com/quote/NVDA/key-statistics

[fishingrod]

Mar 5, 2024 15:15:37 GMT Chahta said:

Looking at the RSI for my holdings, it seems that everything is close to or overbought. How does a holding become a better buy in this condition? Is overbought only going to become a better buy by correcting? As primarily a B&H investor does it even matter? I am looking at one holding to trade out to a lower price since I want to have the best cost basis I can. To me I consider that important for bond funds especially.

Chahta , Where do you track the RSI of your holdings, if I may ask?

VDC and SCHD are not completely overvalued, yet imo. They are the only ones I follow that aren't scary. But QQQ, MGK, VUG, are bordering on exuburance. QQQ,MGK,VUG all up more than 45% total return over 12 months. Even VIG dividend appreciation is up 18.64% over 12 months.

[Chahta]

Mar 5, 2024 23:16:37 GMT fishingrod said:

Mar 5, 2024 15:15:37 GMT Chahta said:

Looking at the RSI for my holdings, it seems that everything is close to or overbought. How does a holding become a better buy in this condition? Is overbought only going to become a better buy by correcting? As primarily a B&H investor does it even matter? I am looking at one holding to trade out to a lower price since I want to have the best cost basis I can. To me I consider that important for bond funds especially.

Chahta , Where do you track the RSI of your holdings, if I may ask?

VDC and SCHD are not completely overvalued, yet imo. They are the only ones I follow that aren't scary. But QQQ, MGK, VUG, are bordering on exuburance. QQQ,MGK,VUG all up more than 45% total return over 12 months. Even VIG dividend appreciation is up 18.64% over 12 months.

I look on StockCharts, SharpCharts page. Yes, SCHD is not over bought per the RSI. I don't look at VDC. The other 3 you mentioned are not over bought per the RSI on StockCharts.

I am not looking to make a trade based on RSI. My comment was primarily that many things I own are overbought per the RSI.

[FD1000]

I have been posting for years now that overvalued or overbought doesn't correlate to what an index or a company would do in the next 1-4-12 weeks but the 24/7 media and the experts must talk about something.
Tesla was overbought for months but made 700% in one year.
NVDA was overbought from mid January to mid February and made 50%. If you sold earlier you missed a lot of performance.
Stock performance doesn't care about what anyone think or what an indicator says, as long as there are more buyers than sellers, the price goes up. It's more than that, a stock like NVDA, has a huge volatility and trying to use T/A indicators can be very tricky.

schrts.co/NiSbxpgT

[chang]

Mar 6, 2024 5:27:11 GMT FD1000 said:

I have been posting for years now that overvalued or overbought doesn't correlate to what an index or a company would do in the next 1-4-12 weeks ........... etc. etc. etc. etc. ...........

Buffett said during an interview in 1973, "in the short run, the market is a voting machine but in the long run, it is a weighing machine".

He was paraphrasing Graham and Dodd, who wrote in 1934 ("Security Analysis"):

"In other words, the market is not a weighing machine, on which the value of each issue is recorded by an exact and impersonal mechanism, in accordance with its specific qualities. Rather should we say that the market is a voting machine, whereon countless individuals register choices which are the product partly of reason and partly of emotion."

And

"Hence the prices of common stocks are not carefully thought out computations, but the resultants of a welter of human reactions. The stock market is a voting machine rather than a weighing machine. It responds to factual data not directly, but only as they affect the decisions of buyers and sellers."

Ronald A. McEachern wrote in 1948 ("Putting Your Dollars To Work"): 

"The market is a voting machine, not a weighing machine. It registers and reflects the thousands upon thousands of personal opinions about tomorrow. It swings high and it swings low on the facts and fancies that move men to investment action."

So I'm sorry to say that while you may have been saying this for years, it has been said for years before you, and you are not adding any original ideas or analysis to a fairly straightforward and well-understood proposition.

More history of this here: quoteinvestigator.com/2020/01/09/market/

[yogibearbull]

Chahta , RSI(14) is only over 14 days (the setting can be changed) and is sort of a run-analysis. So, if a stock is up everyday for 14 days, its RSI would be 100; if it fell everyday for 14 days, its RSI would be 0. But 14-day unidirectional run almost never happen, and normalized RSI(14) is a measure of the in-between situations. So, RSI > 70 is overbought, RSI < 30 is oversold, and 30 < RSI < 70 is boring, although something can be made out of its movements, especially around the 50-line..

RSI(14) shouldn't be confused with similarly named relative-strength/performance indicator that is a ratio indicator.

While RSI(14) is default for the old/classic StockCharts, unfortunately, relative-performance is the default for new StockCharts, but it can be manually changed to RSI(14) - a headache that is worth than paying high subscriptions for StockCharts.

[uncleharley]

Since over bought/oversold is largely a measure of sentiment and since sentiment is not very useful for timing decisions, I rarely give a lot of consideration to the indicators that purport to measure overbought/oversold. It is my opinion that you guys are making this far more complex than it is. JMHO

EDIT:  To clarify the above statement, Over bought/over sold indicators can be important if it is important to sell into strength, such as when you are selling a position that is large in relation to the float of the security you are trading.  This can frequently happen if you are trading thinly traded securities such as some of the ETFs.  MVV for instance.    

[anitya]

Mar 6, 2024 15:14:06 GMT uncleharley said:

Since over bought/oversold is largely a measure of sentiment and since sentiment is not very useful for timing decisions, I rarely give a lot of consideration to the indicators that purport to measure overbought/oversold. It is my opinion that you guys are making this far more complex than it is. JMHO

EDIT:  To clarify the above statement, Over bought/over sold indicators can be important if it is important to sell into strength, such as when you are selling a position that is large in relation to the float of the security you are trading.  This can frequently happen if you are trading thinly traded securities such as some of the ETFs.  MVV for instance.    

I thought it is worth repeating!

[oldskeet]

Hi guys. At present I am not buying much of anything as there are only two funds in my portfolio that are off their 52 week highs by five percent of more; and, they are at full allocation. My portfolio as a whole is off it's 52 week high by less than one percent so for me it is collect interest and dividends while I await the next pullback before I put new money to work. Hopefully, something will soon emerge that will be off it's 52 week high by five percent, of more, that I have an open to buy on. When this occurs, I generally will make a step buy in the fund until it has reached it's target allocation.  At present, the choices are slim.

[bruce]

The blue line typically does not rise or fall by more than ten% in a day; yesterday, it went up by 12.63%, leaving technicians nervous and off-balance. While disconcerting, the line's angle caused some bullishness, while more experienced technicians urged caution. One chartist in the background could be heard saying that based on the steepness of the green line and the fact that it outperformed the yellow line, plus the fact the green line came damn close to the dotted purple line, he expected to be handsomely rewarded, noting that this all had to be confirmed by Mar’s movement past Uranus.
Declaring any investment as overbought based on past performance without regard for future events/earnings can be hazardous if acted upon, in my opinion.

[racqueteer]

I'm pretty sure the colorblind folk are not feeling the love, Bruce! 

[chang]

Mar 6, 2024 20:59:39 GMT oldskeet said:

Hi guys. At present I am not buying much of anything as there are only two funds in my portfolio that are off their 52 week highs by five percent of more; and, they are at full allocation. My portfolio as a whole is off it's 52 week high by less than one percent so for me it is collect interest and dividends while I await the next pullback before I put new money to work. Hopefully, something will soon emerge that will be off it's 52 week high by five percent, of more, that I have an open to buy on. When this occurs, I generally will make a step buy in the fund until it has reached its target allocation.  At present, the choices are slim.

I don’t focus too much on 52-week highs. Look at FSEAX for example (EM). It’s at a 52w high after a recent surge. But it was on life support before that for several years? Is the recent surge just the start of a long bull market? That question is above my pay-grade. But the point is that the 1-year chart seems unrevealing in cases like this. And there are quite a few such cases after 4Q2023’s hot run.

[oldskeet]

Hi guys. In few words, if funds are overbought for me this is an indicator that the market as a whole is as well. So, for me, it is govern with caution and watch what you buy and when you buy for I feel the markets are extended. After all, my cash area of my portfolio is paying me better than five percent. Thus, I have chosen to continue to follow my asset allocation of 20% cash, 40% income and 40% equity as I feel a better buying opportunity lies ahead. When big money decides to cut and run I feel there will be more than just a modest pullback. For now I sit and await the bewitching day of Friday March 15th. I just might do a little buying the following week if Friday and the following Monday are down days.  Take care as my buy, sell indicator is sitting on a reading of 82 (overbought) for the S&P500 Index while the Barometer reflects a reading of 75, overvalued.  With this, the upside looks to be limited at present valuation of 5124.

Additional Comment.  From current valuation of 5124 a 5% gain would put the S&P500 Index at 5380 and a 5% decline would drop it to a valuation of 4865.  And, with better than a 5% yield on cash, I await a better buying opportunity before I put new money to work.  I also believe the FOMC is in no hurry to cut rates.

[steadyeddy]

Also, the BTFP program (Bank Term Funding Program) is being sunset the coming week. This is the program that allowed banks to deposit their long bonds that got a big haircut and instead receive cash (at face value) from the Fed. I believe the Fed is going to ask for the money repayment and return those bonds still under water. 

Could that cause additional stress and volatility on the regional/other banks?

[yogibearbull]

Mar 10, 2024 13:21:58 GMT steadyeddy said:

Also, the BTFP program (Bank Term Funding Program) is being sunset the coming week. This is the program that allowed banks to deposit their long bonds that got a big haircut and instead receive cash (at face value) from the Fed. I believe the Fed is going to ask for the money repayment and return those bonds still under water. 

Could that cause additional stress and volatility on the regional/other banks?

With most stock and bond categories at/near 52-week highs, the end of BTFP may be just a quiet whisper.

[archer]

Looking at a 10 year chart of the RSI for $SPX, More time is spent over bought than oversold. Also more time is spent above 50 than below.

While overbought/ oversold has it's uses, they are nuanced. Short term, buying based on OB/OS could be more risky, more so than buying oversold, but large selling solely on OB, isn't supported by history during a secular bull.

In short, it isn't a panic indicator.

Isn't PE relative? I would think that a high forward PE that is less than current as the case with NVDA would be better than a lower forward that is higher than current. One is improving and the other is getting worse.