Top 10 Percentages Above and Below Moving Average

Aug 26, 2008: 3:04 PM CST

It’s time to look at the top and bottom 10 stocks in the S&P 500 Index in terms of percentage above or below its 20 day simple moving average, which attempts to measure stock strength and weakness, and introduce possible trading opportunities.

What we’re looking at is the percentage that price is extended above the 20 day simple moving average.  If a stock is trading at $55.00 and the 20 day SMA calculates as $50.00 per share, then the stock is $5.00 extended above its SMA, or 10% above its average.  The reverse would be true in terms of percent extended beneath its MA.

One can use this list either to continue to play strength (as strength begats strength), to identify relative strength stocks (or weakness), or to attempt to set up ‘fade’ or retracement trades (meaning, you believe the stock is too overextended based on your analysis and desire to look for an entry to play the stock back to its daily MA).

That being said, let’s run the data and view the list!  (Data as of close, Aug. 26)

Top 10 Stocks Extended Above its 20 day SMA:

In a semi-shift again, we see Oil and Gas Operations (Energy Sector) dominating the Top 10 strong stocks, with strong relative strength retail stocks Target (TGT) and Limited Brands (LTD) shining through.  It might be wise to look deeper into these two stocks if you believe the consumer discretionary sector has bottomed.  With that thought in mind, let’s glance at the weak stocks extended beneath its daily SMA.

Bottom 10 Stocks Extended Beneath its 20 day SMA:

It’s maybe no surprise that Fannie Mae (FNM) and Freddie Mac (FRE) are the weakest stocks, being most extended beneath their 20 day SMA.  The Financial Sector once again is under pressure.  Beyond those, Regional Banks comprised a large part of the bottom 20 list (not shown).  The remainder were mostly Consumer Discretionary/Retail – it’s a reminder to watch out in this sector, as stocks remain weak despite the July rally.

Be careful out there, no matter which strategy you choose.

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