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Overbought + New ATH's = Bullish

Overbought + New ATH's = Bullish

Caleb Franzen's avatar
Caleb Franzen
Feb 04, 2024
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Cubic Analytics
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Overbought + New ATH's = Bullish
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Investors,

The S&P 500’s 1-year Williams%R Oscillator remains overbought, a bullish signal that flashed in April 2023 and mid-November 2023.

The only difference between the recent signals vs. the April 2024 signal is that the current signal carried the S&P 500 to new all-time highs — arguably the most bullish thing that the stock market can do.

There are two things that I want to address regarding this topic:

1. If you don’t believe that overbought signals are bullish, you’re unfortunately mistaken and I’d encourage you to read the piece that I published below (keep in mind that the Nasdaq-100 has gained +5.2% over the 27 trading days since I published the report):

Everyone Has It Wrong

Caleb Franzen
·
December 24, 2023
Everyone Has It Wrong

Read full story

2. If you don’t believe that making new ATH’s is bullish, you’re also mistaken.

But hey, don’t take my word for it… this research from The Carson Group provides a beautiful glimpse into forward stock market returns after a 1-year consolidation and the formation of new all-time highs:

The takeaway is that the S&P 500 is higher one year later 92.9% of the time, with an average return of +14.9%. Keep in mind, if you take any random date, there’s a 70% chance that the stock market is higher one year later and the average 1-year return for the S&P 500 is +9%. Either way, the development of new all-time highs is bullish in terms of accuracy & magnitude.

But it gets better…

The team at 3Fourteen Research aggregated the average return for the S&P 500 in the past 14 cases where the index made new all-time highs after a period of not making new ATH’s for 252 trading days (the equivalent of one year). The composite result is the following trajectory:

While we shouldn’t expect for the next 12 months to follow this path to perfection, this is a fantastic way of visualizing how investor psychology manifests into forward returns after the S&P 500 makes a new all-time high.

But it gets even better…

The S&P 500 just gained +19% over the past three months, which has only occurred 17 times in the past 100 years. In 16 of those 17 past signals, the S&P 500 was higher one year later by an average return of +30% and the U.S. didn’t have a recession.

I reiterate, the development of new all-time highs is one of the most bullish things that can happen to the stock market.

It’s just a fact.

In the remainder of this report, I’ll cover new S&P 500 data, highlight a few of my major short-term concerns, analyze Q4 2023 earnings data (so far), and share the adjustments that I made in the long-term portfolio this week (with screenshots).

To support my work as an independent analyst and to benefit from this value of this report, consider upgrading to a premium subscription using the link below!

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