The S&P 500 is the world’s largest index with a total market capitalization of more than $25 trillion. The index is made up of 500 of the largest companies in the United States.
As a result of its composition, traders, investors, and policy makers tend to use it as a measure of the health of the economy.
The past five years have been interesting for the index. Without dividends, the index has returned more than 90% to its investors.
Today, the question among the investing community is on how high the index can go or whether a correction is around the corner. As shown below, using the Relative Strength Index (RSI) and Stochastics on a yearly chart shows that the index is completely overbought.
The gains up until this point have been associated with solid earnings among the companies, low interest rates, and an improving economy in general.
In the short term, the rise could continue as investors continue to benefit from low interest rates and strong corporate earnings.
This year, the S&P has already broken records. It has gained by about 3.5%, which is the biggest monthly gain in recent years. It is trading at $2798, a few points below the all-time high price it reached a few days ago.
As shown in the chart below, the index has been on an upward trend in the past three months, making slight dips.
This earning season could determine how the S&P 500 performs going forward. Results released so far show that firms are doing well. Already, all the major banks have reported good results. On Thursday, after hours, IBM too reported the first quarterly YoY gain.
Today, the government shut down issue could weigh down the index. This may force the index to go as low as $2770. If it does, markets could take the dips as a strategic entry positions.