High Volatility, Light Volume, Big Pullbacks
Does the high volatility/light volume sell-off on the first day of a holiday-shortened week mean that another recession is right around the corner?
Or are traders just taking profits after a rally in which the Dow industrials gained more than 14% from late September to late October?
However you are interpreting Monday’s sharp down day, there are still a number of stocks trading in bull market territory that have become oversold. More than that, many of these stocks, rather than being used and abused by sellers and short sellers for months, are in fact simply pulling back from significant long-term highs.
As such, many of these stocks are likely to be seen as attractive once profit-taking lowers their price to a level where a new round of buyers – and maybe even some old buyers – arrive to take advantage of the “sale.”
Shares of Intel Corporation (INTC), for example, are only recently off 52-week highs. INTC has sold off for four days in a row since hitting those levels, and is now oversold after finishing lower by nearly 3% on Monday. Note again that Intel was at its high for the year just last week, so profit-taking should be no surprise. More importantly, this selling will allow traders and investors to buy shares of Intel at exceptionally low levels, with the stock finishing at new 20-day lows.
Another stock experiencing strong profit-taking in the wake of rallying to new yearly highs was Intuitive Surgical (ISRG). Shares of ISRG have sold-off for four days in a row, the last two in oversold territory above the 200-day moving average. ISRG was last in oversold territory in early October, shortly before a rally during which ISRG closed higher for seven out of the nine days, gaining nearly 15%.
Both Intel and Intuitive Surgical have quantified positive edges of more than 1% ahead of trading on Tuesday.
Have buyers already begun to return to Ross Stores (ROST)? The stock finished oversold on Friday, dropping to new 10-day lows. But traders were back in the market for ROST shares on Monday, bidding the stock higher by nearly 1% after a three-day pullback.
The snapback rally in ROST is a good example of the sort of buying that can occur after stocks become oversold in bull market territory. It remains to be seen how far any rally in ROST may go. But the stock’s positive response to recently oversold conditions is a reminder of how quickly the mood of the market can shift from an urge to sell to a determination to buy.
All of the stocks in today’s report were available from research and data available through The Machine. To learn more, click here.
David Penn is Editor in Chief of TradingMarkets.com