Too far, too fast? Relentless rally worrying some we are long overdue for a significant pullback

Published Tue, Mar 5 20249:25 AM EST

Too much of a good thing may end up being a bad thing soon. The S & P 500 last week hit a record high, closing above 5,100 for the first time. The broad market index has also posted gains in 16 of the last 18 weeks — something that, according to Deutsche Bank strategist Jim Reid, hasn't happened since 1971. The Nasdaq Composite also reached all-time highs recently, bringing its 12-month gain to nearly 39%. These relentless gains have been powered in large part by enthusiasm around artificial intelligence boosting corporate profits and the Federal Reserve cutting interest rates sometime this year. However, some on Wall Street now fear the market may have overextended itself to the upside, clearing the way for a pullback from record levels. .SPX .IXIC YTD mountain S & P 500 and Nasdaq recently hit records. Time for a pullback? Chris Montagu, Citi's global head of quantitative research, said in a note Monday that long Nasdaq positions have reached their highest levels in three years. BTIG chief market technician Jonathan Krinsky also noted there's a divergence never before seen in Big Tech. He pointed out that Apple's 14-day relative strength index — a popular metric on Wall Street used to gauge an asset's short-term momentum — is at 27. The Nasdaq 100-tied Invesco QQQ Trust has an RSI of 66. AAPL .IXIC YTD mountain Apple vs Nasdaq Composite, YTD "Since QQQs inception in 1999, there has never been a day when AAPL's RSI was below 30 while QQQs RSI was above 65, like it is now," Krinsky wrote. "If we loosen the parameters to AAPL RSI sub-35, there is only one other time: Jan 29th-31st, 2018, right before 'volmageddon'." Volmageddon refers to a massive volatility spike in early 2018 in which the Cboe Volatility Index (VIX) more than doubled to more than 50. The Vix was last around 13 and has not traded above 30 in over a year. Krinsky said a Volmageddon repeat is unlikely but cautioned the Nasdaq-100 has gone 302 trading days without a 2.5% decline — a streak not seen since 1990. "Some sort of shakeout is likely coming," he said. Bottom line: A short-term pullback in stocks could take place soon, if history is any guide. If it materializes, the question for investors will be: Is it a buying opportunity, or the start of a more pronounced decline?