The S&P 500 Just Moved From Oversold to Overbought at the Fastest Pace in Over 4 Decades. If History Repeats Itself, A Truly Massive Move Could Be Coming

Key Points

Despite immense selling pressure from the Iran war, the S&P 500 flipped from oversold to overbought in 12 trading days.

There hasn't been that quick a rebound since 1982.

Following the quick rebound in 1982, the stock market made an enormous move.

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Looking at where the broader benchmark S&P 500 (SNPINDEX: ^GSPC) index is, it's hard to believe that tensions between the U.S. and Iran remain fragile and that oil is trading not far from $100 per barrel in the U.S.

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The stock market has completely erased losses from the brunt of the conflict, which began at the very end of February, and has flipped positive, with the index now up nearly 5% this year.

The recent rebound is simply staggering, according to a team of Evercore ISI market strategists. The 14-day Relative Strength Index (RSI) moved from oversold conditions to overbought in a matter of 12 trading days.

The RSI is a technical momentum indicator that looks at the speed and extent of an index or stock price's changes to determine oversold or overbought conditions. The RSI is measured on a scale of zero to 100. A reading at 30 or below indicates conditions are oversold, while readings at 70 or higher suggest overbought conditions.

"There really aren't enough superlatives to describe these 28 days since the pivotal March 30 low. The bull run has been nothing short of historic, conjuring up memories of 1982," Evercore strategist Julian Emanuel wrote in a recent research note.

Emanuel added that the latest rebound has been quicker than from lows seen during the tariff-tantrum in April of last year, the COVID-19 pandemic in 2020, the lows of the Great Recession in 2009, as well as the lows of the Dot-Com Bubble in 2002 and the crash of 1987.

If history repeats itself, the S&P 500 could be in for another truly massive move.

What happened in 1982?

The only move from oversold to overbought that was quicker than what just occurred happened in 1982, according to Emanuel. At the time, the inflation experienced in the 1970s had peaked, as had the Federal Reserve's interest rates.

Following this move in 1982, the market went on to rally another 69% over the next 14 months. If that happened now, the S&P 500 would surge past 10,670.

However, Emanual is careful to temper expectations, noting that the market is experiencing very different conditions now than it was back in 1982, when it had finally escaped years of selling.

"1982 is also unique for stocks in that after a decade long bear market, [price-to-earnings] valuations had fallen to 8 times, unthinkable in today's environment, which after three consecutive double-digit return years into 2026, remains near generational highs at 25 times," Emanuel wrote.

Furthermore, oil prices remain a big question mark. Oil prices declined significantly in the early to mid 1980s. While an agreement between Iran and the U.S. in the near term would likely lead to a decline in oil prices, there's no guarantee it will materialize.

Even if it does, it could still take many months for supply chains to normalize.

Iran's ability to more or less control the Strait of Hormuz, a critical global oil passage, could also fundamentally change the outlook for oil prices. That said, it's hard to bet against this market's strength. It's also quite possible that interest rates and inflation have peaked, though they remain uncertain as well.

Long-term investors do not need to change their portfolios or their market approach. Remember, history often rhymes but rarely repeats itself, and betting on short-term market moves is highly risky.

It's certainly OK to buy the S&P 500 right now, but I would practice dollar-cost averaging to smooth out your cost basis over time.

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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.