The SPY situation

I am doing more analysis over the weekend and will send out another note on that. Meanwhile, I actually did a long-term assessment of the S&P 500 using the SPY ETF and found something interesting that I thought I would share with you all separately here.

I just posted this on X.

=====

I watched a video on Stock Charts channel where Jack Kosar of Asbury Research talked about the $SPY being overbought on the monthly chart from a RSI perspective.

So, I decided to see the check the monthly chart and see what I could assess from a risk perspective. The picture is a $SPY monthly chart for 10 years.

I have highlighted 5 points in the chart when the RSI got overbought or close to overbought and what happened after that.

I see 5 such instances in the last 10 years.

1. May 2015 RSI showed overbought conditions (had a reading above 70) and the $SPY fell about -15% over the next 8 months.

2. Jan 2018 the RSI showed way overbought conditions and the $SPY fell about -12% in 2 months.

3. Sep 2018 the RSI showed way overbought conditions and the $SPY fell about -21% in 3 months.

4. Jan 2020 the RSI actually technicall did not indicate overbought but was close. But the $SPY fell about -34% in 2 months. This was the Covid time frame.

5. Between March 2021 and Jan 2022, the RSI indicated overbought for most of this period and several times read over the 70 level. The $SPY kept going higher all the way through Dec 2021 and then started falling hard. It fell -27% in the 10 months of 2022 before bottoming in Oct 2022.

After that we see that the RSI is again indicating overbought conditions since Aug 2024. And we are still in those overbought conditions.

We touched a new high in Feb 2025 (month that just ended yesterday) but could not hold on to those highs. The high was 613.23 and the low was 582.44 which gives us a max drawdown of -5%.

The lowest drawdown in the above 5 times was the -12% starting Jan 2018. All this to suggest that there is a chance we are not finished to the downside.

And given how reliable the RSI has been, I would say there is at least a 50% chance that we have not seen the lows for 2025.

I say that specifically because I read that Tom Lee from Fundstrat say we have seen the lows of the year. He may end up being right but I do not know how he can declare that with certainty.

So, what to do about all this?

We are only -5% down from the highs. So, to get overly bearish at this time would be foolish. But to not be cautious would also be foolish.

I am taking a cautionary stance on my long-term portfolio - just being a little more defensive. In my trading account I always play the market as it develops. As of now the trending is bearish so I am not playing the upside unless it is select stocks. And since the $VIX is high I am selling options.