By coinnews 
00:00 Jared Blikre
The NASDAQ 100 just hit the gas, surging over 6% in three of the last six weeks. But has it sped too far, too fast? Is this market overbought? I’m Jared Blikre, host of Stocks and Translation. First, what is an overbought market? It’s pretty simple. It means prices might have moved or rallied too far, too fast, and this sets up for a possible pullback. Now, technically, we can measure this with the relative strength index or RSI. That’s the momentum gauge that we’ve discussed before. Above 70 is considered overbought, and below 30 is oversold. So let’s test it out. Since 1985, if you bought the NASDAQ 100 on any random day, you are up a whopping tenth of a percent after one day. After about half a percent after a week, and a solid 17% after a year with an 81% hit rate. That is your baseline. So stocks tend to go up, right? Now, let’s look at what happens specifically when the index RSI goes overbought. That’s over 70, the way it is right now. That has happened 94 times since ’85, and the first few days are unremarkable, modest gains at best. But fast forward one year, and you are still up an impressive 15% with an even better win rate of 83%. Not exactly a big warning sign here. But here’s where things get really interesting. Right now, we have a breadth blast on top of that RSI signal. Just one month ago, only 11% of the NASDAQ 100 stocks were above their 200-day moving averages. That’s a key technical level. Today, that number has exploded from 11% to 57%, and that, too, is overbought on the RSI. So we’ve only seen this dynamic combo six times since 2011, and guess what? Short-term, things can get a little choppy, but longer-term, three months out, you were up 7%, and after a year, an average gain of 26% with a perfect track record. Every single instance ended higher. So you stack them all side by side, and the story is clear. When price momentum and market breadth both signal overbought, that has been a setup for long-term outsize returns. It’s not an instant green light, but the odds are firmly in your favor over the long haul. So bottom line, NASDAQ’s rally might stall or stutter in the short term, but if history is any guide, this kind of overbought condition usually marks a launchpad and not a ceiling. So if you’re betting on a sustained reversal, you might think twice.