When stocks are soaring and the so-called “risk trade” is on, where can short term traders start looking for stocks that the rest of the trading and investing world has overlooked?
Among the first places to look is the other side of the “risk on” trade, the “risk off” trade in consumer staples stocks like the three in today’s Hot List.
Pulling back by more than 2% on Friday and finishing lower for a second day in a row are shares of Conagra Foods (CAG). CAG was trading near its highest levels in months just a few days ago, and the current correction in the stock comes as traders and investors take profits from the stock’s 5-point run over the course of the second half of October.
Shares of Conagra Foods have pulled back into oversold territory on one previous occasion since climbing back into bull market territory in late September. Then, after a sharp, two-day pullback dropped the stock by more than 2%, buyers rushed in immediately to bid CAG higher for eight out of the next ten trading days.
Traders looking for stocks trading in bear market territory that may have moved “too far, too fast” may want to pay attention to the price action in another food-oriented stock: Molson Coors Brewing Company (TAP).
Below its 200-day moving average since early May, TAP’s bear market saw the stock lose more than 13% from May to October. After an end of month sell-off in October sent the stock tumbling back toward its lowest levels of the year, traders were bellying up to the bar for more TAP, as the stock added more than 5% in a little over a week.
But again, the buying has put the stock in a familiar location: overbought territory where sellers have typically been available to flood the market with shares and drive the stock price lower.
Will sellers strike again as TAP inches toward overbought territory? If history is any guide, traders and active investors will be able to save money by picking up the tab for TAP after the stock’s overbought condition fades.
The last food stock in today’s Hot List is Supervalu (SVU). Like Molson Coors Brewing Company, Supervalu has been trading in bear market territory since the first half of the year, and has been experiencing sharp sell-offs each time it has managed to rally into overbought territory.
The most recent such sell-off in SVU came after the stock’s end of month rally in October, where overbought conditions encouraged selling strong enough to send shares lower by more than 12% in just three days.
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