The Stock List: Do Overbought Markets Herald the Return of the Shorts?
A question for all those traders who were eager to sell the market short in early August or even , more recently, in early September when the S&P 500 had closed lower for 10 out of 11 and 5 out of 6 sessions, respectively:
How does a trade to the short side feel right about now?
With stocks climbing for day after day as we move from the first half of September to the second, my guess is that the impulse to sell short the market among the average trader has waned somewhat since the OMGWAGD days of early August and early September. But the fact of the matter is that, statitiscally speaking, traders should be more willing to consider opportunities to the short side when markets trading below their 200-day moving average have rallied rather than after they have already sold off.
In other words, even though it feels psychologically easier to sell markets short after they have already sold off, the data suggests that what is “easier” psychologically might be “harder” on your trading portfolio over the long term.
To find out why, check out our video on The 4 Keys to Swing Trading and Risk Management by Larry Connors. This 30-minute mini-seminar not only serves as an excellent introduction to the Fall Semester of our Swing Trading College, but also provides practical strategies and tactics that short term traders can put to work RIGHT NOW to potentially improve their trading performance, become a more consistent trader, and keep more of their hard earned money.
To watch our video on Swing Trading and Risk Management, click the link below.
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Here are 7 Stocks You Need to Know for Monday
Among the stocks soaring higher above the 200-day moving average ahead of trading on Monday is ^AMZN^. Shares of AMZN gained more than 5% in Friday’s trading, closing higher for a fifth consecutive trading day.
In addition to Amazon.com, online retailer and auction hotspot ^EBAY^ was also higher by more than 5%. The stock closed above the 200-day for a second day in a row on Friday and is short-term overbought.
The biggest gainer in the S&P 500, however, was aerospace/defense firm, ^COL^. Up more than 7%, the stock is deeply overbought below the 200-day moving average and has finished up for the past four days in a row.
Also overbought below the 200-day are fellow aerospace/defense stalwarts ^BA^ and ^LMT^. Shares of BA have gained for the past five consecutive trading days, the last two in overbought territory. LMT has closed in overbought territory for the past three straight sessions and is up five in a row.
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Up four sessions in a row and also overbought below the 200-day is the best performing transportation stock in the S&P 500: ^LUV^. Friday marked the stock’s second consecutive finish in overbough territory.
What’s down on an up day? Above the 200-day moving average, shares of ^GPC^ pulled back by well over 2% after a four-day rally.
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David Penn is Editor in Chief of TradingMarkets.com