The further an asset climbs, the more likely it is to fall back down.
That’s the logic behind a technical indicator called the “relative strength index,” which Morgan Stanley says is the most stretched it’s been in 20 years when it comes to the benchmark S&P 500. In fact, the measure’s current reading of 93 is the second-highest since 1928.
Make no mistake, the S&P 500 has been trading above the 80 level that signals “overbought” condition for the better part of the last year. But as it’s continued its precipitous move higher, it’s shifted from simply overbought to historically stretched.
