Scanning for Most Extended Stocks from 200d SMA to End July

Jul 27, 2013: 1:34 PM CST

Let’s update our ongoing stock scan of the uptrending stocks most overextended and downtrending stocks most under-extended stocks from their 200 day Simple Moving Average.

This scan provides candidates to trade pro-trend retracement entries or alternatively, aggressive reversal or ‘fade’ candidates for those inclined to trade counter-trend movement.

We’ll start with the Most Over-extended Stocks above their rising 200 day SMA:

Above 200d SMA Stock Scan

All five top SP500 over-extended stocks are clustered roughly 50% above their rising 200 day simple moving average so there isn’t much difference in the list this month.

GameStop (GME) and Netflix (NFLX) have experienced stellar uptrends as shown in the quick charts below:

GameStop GME Rising Bull Market Uptrend Stock Chart

Netflix (NFLX):

Netflix NFLX Strong Bull Market Uptrend Chart

Generally, a trader would prefer to enter a stock that is rising in a persistent uptrend through a pullback or retracement, similar to a “Bull Flag” pattern.

While GameStop (GME) just completed a ‘flag’ retracement to the rising 20 day EMA (trade entry signal), it remains in breakout bullish mode without a clear entry signal.

Netflix (NFLX) however is in the midst of a retracement to the rising 20 and 50 day EMAs which marks a pivot or decision-point (inflection point) for the stock.

Another current top stock, Best Buy (BBY), has shown a persistent uptrend as well but the retracements have not been as clear (the trend has been more of a ‘Creeping’ mode):

Best Buy BBY Stock Chart Trend Bull Market

As we often discuss in these stock-scan update posts, aggressive traders can look to short-sell overextended movements away from the rising 20 or 50 day EMA to play for a ‘scalp’ or retracement back to rising moving averages.

It’s often better, or at least lower-risk with higher reward potential, to join uptrending stocks as opposed to fighting them by adding shares on pullbacks to rising moving averages.

The same can be said about downtrending stocks extended down from their falling 200 day SMA:

SP500 Stocks Most underextended beneath falling 200 day simple moving average SMA

We’ll skip News Corp (NWSA) and focus on the other names for candidates.

Specifically, Newmont Mining has formed an interesting retracement to compress again between the 20 and 50 day EMAs:

Newmont Mining NMA Retracemnt Flag Bear Downtrend Trend

I highlighted each of the prior four instances during the persistent downtrend where shares have retraced into the “grey area” between the falling 20 and 50 day EMAs.

These always form decision-points where aggressive traders can play for a bullish breakout and reversal on a clean break ABOVE the 50 EMA or else pro-trend retracement-style traders can enter the ongoing downtrend on retracements to the falling 50 day EMA or else a breakdown under the 20 EMA.

Watch the divergences – they tend to argue for a reversal play but price has to prove it is capable of reversing, else the next swing will be a simple pro-trend movement back to the $27.00 per share low.

Similarly, Cliffs Natural Resources (CLF) is threatening a bullish reversal:

Cliffs Natural Resources CLF Downtrend Reversal Retracement Chart

I highlighted the prior “trap” on the May 2013 breakthrough above the 50 EMA which is similar to the current breakout above $18.00 per share.

Breakouts generate excitement yet buyers/bulls must sustain the breakout and enthusiasm, lest the persistent downtrend resume with a ‘failure outcome’ and bearish trigger under $18.00 per share.

If you want to track the outcome of stock performance from prior monthly scans, visit the following posts:

Over/Under-Extended Stocks from May 2013

Over/Under-Extended Stocks from February 2013

You’ll likely find familiar names like Netflix (NFLX) and Best Buy (BBY) on the upside along with Cliffs Natural (CLF) and Newmont Mining (NEM) on the downside, which simply reminds us of the power of persistent trends in motion.

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Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).

3 Comments

3 Responses to “Scanning for Most Extended Stocks from 200d SMA to End July”

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