Warm weather climate or not, investors around the world are feeling the heat of U.S. equities rallying during the month of August. As the major U.S. indexes continue to rebound from March’s pandemic sell-off fiasco, could indexes like the S&P 500 be in danger of overheating?
“The S&P 500 and the Dow just wrapped up their best August in more than 30 years,” a CNBC article said. “The blue-chip average rallied 7.6% in August for its fifth positive month in a row and its biggest August gain since 1984. The S&P 500 also rose for a fifth month straight, up 7%, clinching its best August since 1986.”
“We’re overbought in the S&P 500 as an index in the short run,” said National Securities’ Art Hogan on CNBC’s “Trading Nation.” “It moved higher really quickly.”
“When that sits around 50, you’re basically neutral. When it gets to 30, you’re oversold,” he said. “And, when you get to 60 or 70, you’re overbought. We’re currently at about 75 on the S&P 500. So, we’re clearly overbought.”
Trading the Ups and Downs of the S&P
As the markets continue to flux with the uncertainty of the coronavirus, investors can utilize trading options for the S&P 500 that go in either direction, depending on your own confirmation bias. For bullishness, there’s the Direxion Daily S&P 500® Bull 3X Shares ETF (NYSEArca: SPXL).
SPXL daily investment results equating to 300% of the daily performance of the S&P 500® Index. The fund, under normal circumstances, invests at least 80% of its net assets (plus borrowing for investment purposes) in financial instruments, such as swap agreements, and securities of the index, ETFs) that track the index and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the index.
The coronavirus could continue to put a bearish spin on major indexes like the S&P 500. As such, traders can look to the Direxion Daily S&P 500 Bear 3X ETF (NYSEArca: SPXS) for a leveraged inverse play.
SPXS seeks daily investment results equal to 300 percent of the inverse of the daily performance of the S&P 500 Index. The fund, under normal circumstances, invests in swap agreements, futures contracts, short positions or other financial instruments that, in combination, provide inverse (opposite) or short leveraged exposure to the index equal to at least 80 percent of the fund’s net assets (plus borrowing for investment purposes).
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