When stocks are trading at 52-week highs, there are often only two prudent actions to take if you are a short-term trader: locking in gains or wishing you had gains to lock in.
What is not the most sensible act, however, is the one that is the most tempting – namely, to chase these already high-flying stocks even higher, hoping that there will be someone even more desperate than you are to buy into the market a few days or weeks from now.
Regardless of time scale, new highs bring attention. They are typically viewed as a sign of market strength, even by short-term traders who have been burned in the past buying stocks just as they rally to new highs, only to have sellers swoop in, taking profits, selling shares short, and otherwise reversing the gains that seemed to be there for the taking when momentum was surging.
The stocks in today’s report are all trading near long-term highs and have just begun to experience profit-taking as traders and investors lock in gains. And while none of these stocks are yet in oversold territory on a technical basis, haven’t reached significant, new lows and have not traded lower for multiple sessions, they are the kind of stocks that traders and active investors should keep on their watch lists should currently modest profit-taking grow into major panic selling.
Shares of O’Reilly Automotive (NASDAQ: ORLY) rallied new, 52-week highs this week, gaining ground for seven out of eight trading days heading into Friday’s session. Traders were aggressive to take profits in the stock, sending ORLY lower by nearly 3%. The selling in ORLY has produced a short-term edge of more than three quarters of a percent, which likely will increase if sellers remain on the offensive when trading resumes on Monday.
Also pulling back from new, 52-week highs heading into the weekend were shares of News Corp Inc. (NASDAQ: NWSA). The stock pulled back by well over 2% on Friday after closing higher for three days in a row, the last in technically overbought territory above the 200-day moving average. NWSA is trading at neutral levels, hovering as close to short-term highs as short-term lows and has a short-term, positive edge of three quarters of a percent.
Like News Corp, it was a three-day rally that helped bring out the sellers in the market for Dollar Tree Stores Inc. (NASDAQ: DLTR) on the final trading day of the week. DLTR sold off by more than 1% on Friday, pulling back from new, 52-week highs and a pair of closes in technically overbought territory. The selling in DLTR has created a short-term positive edge of more than half a percent. But additionally selling will be needed to improve upon the stock’s neutral 5 out of 10 rating.
Be sure to read our latest column from 7 Stocks You Need to Know: Volatility and Visa’s New High.
David Penn is Editor in Chief of TradingMarkets.com.