Sell-Off in Safety Stocks Leads to Short Term Rally
Even though the three-day pullbacks in Altria Group (NYSE: MO), Pfizer (NYSE: PFE) and Monsanto (NYSE: MON) never took the stocks into oversold territory, traders alert to the potential of buying stocks after they have pulled back rather than after they have rallied were able to take advantage of one-day gains of well over 2% in the case of Monsanto and nearly 2% for Altria Group and Pfizer.
The immediate catalyst for the return of buyers, from a technical perspective, was simply an oversupply of sellers. Over the three days of its pullback at the beginning of December, for example, Monsanto went from a 2-period Relative Strength Index of more than 80 to a 2-period RSI of less than 25. This kind of drop in a stock as otherwise low volatility as Monsanto was more than enough to bring traders off the sidelines in a buying mood.
Price action in Pfizer and, especially, Altria Group was similar, with a sharp drop in overbought status leading to significantly lower 2-period RSI values and a subsequent short-term bounce.
Are other stocks making multiple consecutive lower closes heading into trading on Wednesday? And have these closes taken the stocks into technically oversold territory where buyers have historically been lured back into the market?
Heading into Wednesday’s session, Visa Inc. (NYSE: V) is among those stocks that have pulled back for at least two days in a row. Although not technically oversold, V has finished lower for the last three consecutive sessions, down more than half of one percent in trading on Tuesday.
Down 3% and closing lower for a third day in a row are shares of Transcend Services (NASDAQ: TRCR). The stock is very near oversold territory above the 200-day moving average, and will likely finish oversold on any additional follow-through selling in Wednesday’s session. TRCR’s last multiple down day finish in oversold territory led to a one-day gain of more than 2% and a six-day gain of well over 5%.
The stocks in today’s report were drawn from the data and research available through The Machine. To find out more, click here.
David Penn is Editor in Chief of TradingMarkets.com