Predicting a stock market correction is a piece of cake (insert LOL). Here is one quick way to spot looming trouble, compliments of market technicians at JPMorgan.
Analyst Jason Hunter points out in a new note that historically, overbought market conditions in the market rarely end rallies. That's a good thing right now as the Relative Strength Index (RSI), a measure of market momentum, is around levels not seen since the internet bubble explosion. While Hunter currently sees no evidence of a market bubble, he suggests investors watch out for a divergence in the RSI vs. broader market highs to spot a potential blowup.
Another way to identify a quick downdraft in stocks comes from us here at TheStreet.
FAANG stocks (acronym for Facebook (FB) - Get Report , Apple (AAPL) - Get Report , Amazon (AMZN) - Get Report , Netflix (NFLX) - Get Report and Google (GOOGL) - Get Report ) have been on fire, rising an average of 50% over the past year. Investors have bid up these names on optimism pegged to artificial intelligence, driver-less cars and new smartphones. M&A in the data center space has also helped to lift sentiment. Once these market leaders begin to lag the broader averages, and it will happen at some point this year, it could signal worries that the market is nearing full valuation.
Dare you to dump Netflix here.
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