Short Term Trading Strategies That Work: Overbought Financials and Energies (JPM, GS, MA, TGT, HAL, XOM)

With the long-awaited news that China was easing its currency peg to the U.S. dollar, the pre-market index futures are indicating a particularly strong open on Monday.

The effect of all this, as Larry Connors pointed out this morning in the “Morning Market Intelligence” component of the Daily Battle Plan (click here to launch your free, 7-day trial), is to make already overbought markets even more overbought – at least early in the open.

Increasing overbought conditions mean different things to different stocks – and to different high probability traders. For stocks that are trading above the 200-day moving average, renewed buying means that traders will have to wait before picking up shares of radically overbought stocks like ^AAPL^, ^CAT^ and ^KFT^.

These stocks have made a good deal of money for investors and traders who have been holding them for the past several days. When profit-taking sets in, the reversal in stocks like these could be swift and severe – creating potential opportunities for traders looking to buy markets after they’ve pulled back.

One major group that has become increasingly overbought BELOW the 200-day moving average are financial stocks.

JPM Chart

This includes stocks like ^JPM^ (above), ^GS^, ^MA^ and ^USB^. Also to this group we could add Visa ^V^ – which may have already succumbed to overbought conditions below the 200-day moving average by reversing just over 1% on Friday.

Energy stocks have also been rebounding over the past few days. Some of these companies – like ^BHI^ and ^COP^ – are trading above their 200-day moving averages. However others, like ^HAL^ and ^XOM^ (below) are becoming increasingly overbought below the 200-day moving average and may be potential targets for traders looking for stocks to sell short on rallies.

XOM Chart

All is not short in the world of Short Term Trading Strategies That Work. For traders looking for opportunities on the long side, there are at least two stocks that have been pulling back above the 200-day moving average. These markets include ^S^ and ^TGT^ (below).

TGT Chart

To learn how to trade stocks and exchange-traded funds using quantified, professional short term trading strategies, be sure to pick up a copy of the book by Larry Connor and Cesar Alvarez, Short Term Trading Strategies That Work, now available in paperback. Click here to learn more.

David Penn is Editor in Chief at