In a notable rebound from a three-month losing streak, U.S. stocks surged 7.3% in November—the largest monthly gain in over a year. As investors closely analyze the rally’s sustainability, Peter Cecchini, director of research at Axonic Capital, shared insights during a Bloomberg interview.
A crucial signal under scrutiny is the S&P 500 Index‘s 14-day relative strength index (RSI), which has approached the 70 level, indicating potential overheating. This rapid shift from oversold to overbought within a month, observed only 11 times since 1950, historically led to positive equity gains—an observation highlighted by Cecchini.
Despite the positive momentum, caution is advised, as the index approaches the 4,500 level, where automatic orders to lock in gains are common. While briefly breached this week, the index slightly retreated to 4,496, raising potential concerns.
Cecchini emphasized the sensitivity of shorted stocks to rate moves, contributing to the current rally. He noted that these shorted names often have leverage, making them responsive to market dynamics. The cautionary stance is underscored by the potential impact of seasonality and any unexpected shifts in market sentiment.
In summary, the recent S&P 500 gains, discussed by Peter Cecchini on Bloomberg, face potential hurdles at technical levels. Investors are advised to carefully monitor key indicators for insights into the market’s direction as it navigates this intriguing phase of recovery.