DataTrader: Are the Shorts Circling Safeway Again?

Up five days in a row in bear market territory, shares of Safeway Inc. (SWY) are clearly due for a pullback. The only question is when.

Strength on Monday helped send shares of the major American supermarket chain higher by more than 1% ahead of Tuesday’s session, producing SWY’s highest close since August and its third finish in overbought territory below the 200-day.

What may be especially relevant to short term traders is the fact that the stock has rallied to levels from which, in the short term, the stock has tended to reverse and move lower. Even as recently as the stock’s last two advances into overbought “consider avoiding” territory, extreme conditions managed to bring sellers off the sidelines in sufficient force to bring the stock lower in the short term.

Consider SWY’s short term rallies in mid-August and again at the end of the month. In the first instance, a 5-day rally led to a major ratings downgrade in the stock and a sell-off that took shares of SWY lower by well over 6% over the next six days. A similar four-day rally in late August was met by sellers, as well, who sent SWY down by more than 3% in just two days.

Whether SWY’s current rally into deeply overbought territory will be met by the same aggressive selling in the short term remains to be seen. But what the data does suggest is that those traders and active investors looking to climb on board the Safeway bandwagon may have the opportunity to do so at significantly lower prices over the next few days.

Quantified data and research on stocks like SWY is available each evening after the market close. To learn more, click here.

David Penn is Editor in Chief of TradingMarkets.com