Signs of Overheating Appear in a Big Chunk of the S&P 500's Membership

The U.S. stock market is gathering momentum unlike any time in almost two years. For 10 straight days, at least 15 percent of companies in the S&P 500 Index have traded at a relative strength level of more than 70 -- a metric technical analysts use to indicate shares that have rallied too far, too quickly -- something that’s happened 25 times in the past decade, according to data compiled by Bloomberg.

Here’s what the S&P 500 has done in the months following such an occurrence:

  • Added an average 1.3 percent in next 30 trading days; compares with average 0.8 percent gain in all other stretches of equal length
  • Lost an average 1.1 percent in the next 60 days; index adds an average 1.6 percent in all other stretches
  • Gained an average 0.6 percent in the next 90 days; index adds an average 2.6 percent in all other stretches