Going into the final trading day of the week, four out the 5 high probability stocks for the next 5 days are stocks that are overbought below the 200-day moving average. Our research shows that
stocks that are overbought below the 200-day moving average have a tendency to underperform in the short term and are best avoided or, for more aggressive traders, sold short.
Read more about our research in the book by Larry Connors and Cesar Alvarez, Short Term Trading Strategies That Work – 16 quantified, backtested short term trading strategies for bull, bear and sideways markets. See the link below for more information.
^GILD^ has closed higher below the 200-day moving average for four consecutive trading days. All four of those closes have been in overbought territory, as well. This has made Gilead was of the most overbought stocks in the S&P 100.
The last time Gilead was this overbought below the 200-day was back in the first half of June, shortly before sliding from just north of
36 to less than 34 on an intraday basis over a four-day
Sticking with the S&P 100, one of the few oversold stocks trading above its 200-day moving average is ^AXP^.
American Express has closed lower for three days in a row leading into Friday’s trading. Although pullbacks over the summer have brought the stock below its 200-day moving average in a number of
instances, each time AXP has managed to rally to new short-to-intermediate term highs.
The current pullback in AXP puts the stock at its most oversold level since early July when the stock soared from a closing low of about 39 to a closing high of more than 44 in five days.
^GD^ has closed higher for three out of the past four trading days below the 200-day and is edging back into overbought territory as of Thursday’s close. Additional strength in this stock will likely put it at levels from which it has historically underperformed.
^GOOG^ which was in the financial news again today is also one of the more overbought stocks in the S&P 100 ahead of Friday’s trading.
Shares of Google are up two days in a row below the 200-day. But Thursday marked the first real return to overbought territory. The stock is only recently at new short term highs, having broken free from a short term consolidation on Wednesday. Google’s last overbought extremes were in the first half of July, when a string of seven consecutive higher closes resulted in a one-day
overbought sell-off of nearly 7%.
Up 3% on Thursday and back into overbought territory below the 200-day moving average on Thursday were shares of ^MON^. The stock had been in a consolidation range for the past several days, where overbought conditions from the stock’s early July rally were apparently worked off. Having dipped back out of overbought territory, Monsanto became once again an attractive target for many traders. High probability traders, on the other hand, should consider avoiding Monsanto – or selling the stock short – as it moves higher and deeper into overbought territory.
Learn quantified strategies for trading stocks like Google, Monsanto and American Express. click
here to order your copy of Short Term Trading Strategies That Work – now in paperback!
David Penn is Editor in Chief at TradingMarkets.com.