Stock Scan Top 5 Most Extended from 200d SMA

Apr 18, 2011: 10:54 AM CST

With the market breaking sharply down this morning, let’s take an updated look at the current Top 5 Stocks Most Over and Under-extended from their 200 day Simple Moving Averages.

As a reminder, we use this simple screen for two main divergent strategies:

First, if you want to play trend (market) continuity strategies, you’ll want to know what the strongest stocks are so you can profit from the relative strength of the winners (buying on pullbacks or breakouts) and then potentially (aggressively) short-selling the weakest stocks in persistent down-trends.

Second, if you want to play trend (market) reversals (mean reversion), you’ll want to find the weakest stocks that are beaten down that might benefit the most in the event of a market reversal to the upside, or find the most overextended stocks ‘in the stratosphere’ and try to short them for a retracement move back to their moving averages.

With that in mind, here are the Top 5 Most Over-Extended Stocks in the S&P 500:

If you’ve been following along with prior updates I’ve been showing, Tesoro (TSO) and Cabot Oil and Gas (COG) have shown up on prior updates.

Popular clothing retailer Abercrombie and Fitch (ANF) snuck its way into the strong list this week.

I would argue that National Semi (NSM) is an aberration due to merger and acquisition news from Texas Instruments (TXM), so while it is the most overextended stock in the S&P 500 right now, one look at the huge gap in April shows why.  I would recommend striking this from the list as it doesn’t fit the criterion of a slow, steady rising uptrend in price that some of the other stocks do.

While not listed in the Top 5, I wanted to update on some of the stocks in the April 3rd Top Extended Update:

Massey Energy (MEE) slipped to number 9, while Tesero (last time’s #1) still ‘technically’ holds the top spot if you eliminate the news-driven National Semi stock, and Cabot Oil and Gas (COG) slipped from #3 to #4… again if you control for NSM, COG retains the #3 slot.

I think Abercrombie and Fitch (ANF) is the stock on the list that’s most worthy of further analysis this week, surging impulsively in early April.

Anyway, those are the top picks – here are the Top 5 Most Under-Extended Stocks in the S&P 500:

It may be no surprise that Tellabs (TLAB) has held the Top #1 Most Under-Extended Stock each of the times I did these updates recently.

The stock is priced at $5.00 currently and appears to be heading lower after the recent retracement up into resistance.

Oft-beaten down stock Cisco (CSCO) takes the #2 spot, being down 20% from its 200 day SMA and falling, touching a brand new 52-week low this morning (technically, a new low not seen since March 2009 – when the Stock Market bottomed!).

Retailer Best Buy (BBY) finds itself again in the Bottom Three, though it held the #2 spot in early April.  Best Buy is flirting with last line support at $28, with just a slight nudge to the downside taking it back also to March 2009 like Cisco.

By the way, another helpful “broader” insight this type of screen shows is to reveal hidden Sector Strength of Weakness.

For example, Basic Materials has topped the Over-Extended List (strength) while Technology topped the Under-Extended List.  It’s helpful to know where Sector Strength resides, and scans like this can help show ‘hidden’ insights in a particular sector keeps popping up.

This screen, courtesy of FinViz Screener, is a simple yet effective way of finding stocks to trade based on your type of preferred strategy – going long with relative strength winners and short with relative strength losers (entering on pullbacks or new breakouts) … or playing for short-term retracements which often occur in overextended stocks (a fun, but  riskier strategy).

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!

4 Comments

4 Responses to “Stock Scan Top 5 Most Extended from 200d SMA”

  1. Charting Surging Stock Abercrombie and Fitch ANF into Weekly Resistance | Afraid to Trade.com Blog Says:

    […] AM CST Earlier, I mentioned that retailer Abercrombie & Fitch snuck its way onto the “Top 5 Most Extended Stocks from the 200d SMA” list and that it was worth checking out for more […]

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    […] April 18 2011 Update […]

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    […] April 18 2011 Update […]

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    […] Buy (BBY) previously appeared on another one of these updates of stocks most under-extended from their 200d SMA (April 20…as the #3 most unde-rextended stock at the […]