This week’s look at the 7 Stocks You Need to Know based on the research in the book by Larry Connors and Cesar Alvarez, Short Term Trading Strategies That Work, includes three oversold stocks and four overbought stocks, including Internet company, ^YHOO^.
The focus this week is on stocks from the Nasdaq 100. The Nasdaq 100’s tracking exchange-traded fund (ETF) is the ^QQQQ^. The QQQQ has spent the past two days pulling back from recent overbought conditions above the 200-day moving average. Continued weakness above the 200-day may make the ETF a target for high probability traders looking to buy weakness in otherwise healthy markets. Traders interested in the QQQQ should also be monitoring price action in its leveraged and inverse leveraged counterparts, particularly the ^QLD^ and the ^QID^.
Time to Bet Against Biotechs?
Of the 7 Stocks You Need to Know over the next few days, three are from the biotechnology sector.
Shares of ^GILD^ (above) have closed higher below the 200-day moving average for five consecutive trading days. This has put the stock deeply in overbought territory, which means that the stock is increasingly vulnerable to reversal.
Gilead was last in overbought territory below the 200-day moving average in the June. After a closing overbought high of more than 36, the stock closed at just above 34 four days later.
Other biotechnology stocks that have become overbought below the 200-day include ^QGEN^, which is up seven days in a row below the 200-day moving average, and ^VRTX^.
Opportunities Among the Oversold
There are three stocks in the Nasdaq 100 that have become significantly oversold in recent days. These stocks include ^ORLY^, ^ADSK^ and ^CMCSA^ (below).
Shares of Comcast Corporation lost well over 1%, but as the chart shows, intraday selling was much more severe than the stock’s end of day decline shows. With its exceptionally low 2-period RSI, CMCSA is one of the most oversold stocks in the Nasdaq 100.
Yahoo: Breaking Out into the Overbought
I mentioned Yahoo at the beginning of this report. shares of ^YHOO^ have only begun to trade in overbought territory below the 200-day moving average. Additional strength in the short term will be the signal for traders looking to sell overbought stocks like Yahoo short. Traders should note how Yahoo traded in the first half of July: becoming and remaining overbought below the 200-day for several days before breaking down.
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David Penn is Editor in Chief at TradingMarkets.com.