High Probability Trading Report: 7 Overbought Stocks You Need to Know (FCX, GD, KO, MS, T, WFC, DOW)
Going into the final trading day of the week, seven stocks from the S&P 100 rallied into overbought territory below the 200-day moving average. Based on our research into short term stock price behavior, we know that stocks that become overbought below the 200-day moving average have a tendency to underperform in the short term.
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^FCX^ has closed higher for the past four consecutive trading days, climbing to its highest closing level since June 2nd. Note that FCX fell by more than 11% over the three days following that June 2nd close. The stock has traded below its 200-day moving average since late April.
Below its 200-day moving average since the second half of May, shares of ^GD^ (below) have again become overbought. Both of the previous two overbought extremes reached by General Dynamics, in early June and again in the second half of that month, resulted in signficant sell-offs in the stock.
^KO^ has rallied to within cents of its 200-day moving average, propelled higher by two days of strong buying on Tuesday and Wednesday. Additional buying on Thursday helped keep the stock in overbought territory below the 200-day. Note that shares of Coca-Cola only recently emerged from a pullback following a string of seven consecutive trading days in exceptionally overbought territory.
Despite sellers keeping shares of ^MS^ (below) under pressure on Thursday, the stock remains overbought below the 200-day moving average. Like Coca Cola, MS is rallying after a short sell-off after a string of overbought sessions in mid-July.
Up by more than 2% on Thursday, ^T^ is back in overbought territory after a brief two-day pullback. The stock neared its 200-day moving average on an intraday basis, but was pushed back by selling late in the day. AT&T has been trading below its 200-day moving average since early May.
^WFC^ is just barely inside overbought territory below the 200-day moving average. WFC eeked out a modest gain on Wednesday after sellers swarmed on an especially bullish open. But more solid gains were to be had on Thursday as the stock recouped many of the previous session’s loss from the open.
Closing higher for two out of the past three sessions below the 200-day moving average were shares of ^DOW^ on Thursday. DOW was in overbought territory as recently as last week, and fell from $27 to just over $25 within three days.
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David Penn is Editor in Chief at TradingMarkets.com.