The S&P 500 dropped this week. Treasury yields rose. Inflation concerns returned. Several stocks looked at all this information and decided to stay technically overbought anyway.
These are the market's most confident idiots. The rest of the class got the assignment. They read it. They turned in something reasonable. These stocks showed up late, didn't study, and are somehow still getting A's on a technicality.
Overbought means too many people bought the stock too fast. The RSI went above 70. Momentum indicators started flashing red. Every chart pattern that retail traders learned from a YouTube video in 2021 says sell. The stocks keep going up because technical indicators are horoscopes for people who own Patagonia vests.
Here's what happened: the broad market pulled back. Bonds sold off. Everyone got nervous about inflation again, as if inflation ever left or as if anyone actually understands what the fed funds rate does beyond making their group chat feel smart. But a handful of stocks kept climbing like they couldn't hear the fire alarm.
This creates a fun situation. These stocks are now more expensive relative to their recent trading range than they were before the market dropped. They got more overbought while everything else got less bought. They're the last drunk guy at the party who doesn't realize the cops are outside.
Retail traders love overbought stocks because the definition contains the word bought. They see it as proof that everyone else is buying. They're not wrong. Everyone else was buying. Past tense matters in technical analysis, but only if you're the kind of person who reads the full sentence.
The move makes perfect sense if you believe stock prices are determined by anything other than which direction creates the most pain for the most people holding options that expire in three days.
Photo by Maxim Hopman on Unsplash
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