In this sneak peek from Action Alerts PLUS investing club, team member Bob Lang shared his analysis on the S&P 500 as stocks rally on a weaker-than-expected jobs report and a less hawkish stance from the Federal Reserve.
Related: Jobs report shows marked slowdown; jobless rate highest since January
FULL VIDEO TRANSCRIPT BELOW:
BOB LANG: Well, it's really been a really nice oversold rally here. Last Friday, just go back a week from a week ago, we were pretty oversold. And now we're just to the opposite end. We're really overbought here right now. A huge rally off of those lows, J.D. , from 4,100. Close to 260 handles on the S&P 500. That's unprecedented in a five-day period.
So, again, we've gone from oversold to overbought. Now, does this mean that the coast is clear and we're into a new bull market? Probably not yet. You got to see a trend develop. And a trend of higher highs and higher lows is something that we look for. These V bottoms that we actually haven't had recently, but we do have here over the past couple of weeks, are a little bit concerning because it requires a lot of short covering people who have been short the market for quite a while, they come in there and step in and start buying.
And then other buyers come in and start piling in and you get some sort of a drift up like we've had in the past three, four days. So I think it's important to hold that 4,100 level that we talked about last week, J.D. . But as of right now, 4,400 was a level that S&P 500 couldn't penetrate more recently back to the beginning of October. So that's going to be the test to the upside.
J.D. DURKIN: So Bob, a quick follow up here. Even if we are overbought, as you indicate, do you take solace knowing that the S&P is no longer below at least the 200-day moving average? At least as of right now, we're above it, and above it by quite some margin.
BOB LANG: Yeah. And so that 200-day moving average is a market that we talked about last week, J.D. , is the fact that big institutions look at that moving average as an important place where they decide to make important investing decisions. And so the big investors come in and start supporting the market at the 200-day moving average. It gives us much more comfort in knowing that level is going to hold on another test back down to that area.
But as it is, what I'd like to see is a series of higher highs and higher lows. So as we reach an overbought reading, as we are in right now, I'd like to see market pull back to somewhere between that low of 4,100 and wherever the crest is going to be before we start pulling back. I don't if it's right now if it's 4355 or 4360. If we make a higher low somewhere in between there in the next four to seven days and we start heading right back up again, then I'm going to be convinced that we can go much higher.
