Heading into trading on Monday, the most overbought sector was the energy group, which saw buyers return to strength over the past few days after an extended decline.
These overbought conditions can be found in both stocks and exchange-traded funds (ETFs) alike.
Stocks:
Among oil and energy stocks that have become overbought below the 200-day moving average ahead of Monday’s trading are stocks like ^SLB^ and ^BHI^. Both stocks have closed in exceptionally overbought territory for two consecutive trading days and are increasingly vulnerable to reversal. Also to this group is oil stock ^NOV^ (below).
Increasingly overbought but not quite as levels as extreme as those in the stocks above are newsy names like ^HAL^ and, to a lesser extent, ^RIG^. High probability traders looking for an excuse to trade ^BP^ will have to wait for a significant short-covering rally before this stock is likely to become overbought again any time soon.
Exchange-traded Funds (ETFs):
Both leveraged and regular, non-leveraged ETFs may be providing opportunities for high probability traders over the next few days.
Among non-leveraged ETFs, there are a number of funds that have become overbought below the 200-day moving average. These include the ^XLE^ (below) and the ^IYE^.
Both ETFs have closed in overbought territory for the past two consecutive trading days going into Monday’s trading.
On the leveraged side of the ETF market, overbought conditions are prevalent in funds like the ^DIG^ and the ^ERX^ (below) At the same time, increasingly oversold are inverse leveraged funds like the ^DUG^ and the ^ERY^. Remember that while we typically require leveraged ETFs – regular and inverse – to reach more extreme levels of overbought or oversold, the 200-day moving average is not a significant factor as it is with regular, non-leveraged, non-derivative exchange-traded funds and stocks.
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David Penn is Editor in Chief at TradingMarkets.com.