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Birinyi Associates: Market at Extreme Overbought Levels

The stock market has entered extreme overbought levels, with nine out of ten S&P 500 sectors trading within 2 percent of that level, according to a research note by Birinyi Associates.

Using a sector-timing model, the market research and money management firm determines absolute overbought or oversold pricing levels to determine entry and exit points.

"Currently the S&P 500 is 5.15 percent above the top end of its trading envelope, which is the highest it has been in the past year. We consider anything within 2 percent of that level extremely overbought," says Kevin Pleines, equity market analyst at Birinyi Associates.

The S&P 500 is up 13.5 percent so far this month, on track for its best monthly performance since January 1987, while the Dow is poised for its best point-gain ever, up 1,295 points or 11.9 percent.

Birinyi Associates has been positive on the market and looking for it to break out of its trading range since early August, according to Pleines, but from a short-term technical standpoint, their model has reached an "absolute sell price."

Although he does not view the extreme "overbought" level as a sell signal, it is not the best entry-point in the short-term, and may be time to take some profits off the table.

The table below highlights the various trading ranges used by Birinyi Associates in its sector timing model.

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