Top Stocks Extended from their Moving Average May 9

May 10, 2009: 7:56 AM CST

From time to time – and especially after a large rally in the market – I like to take a look at the stocks that have overextended themselves far above their 20 day simple moving average.  This gives me a reading on what stocks might be ripe for a pullback should the market experience weakness – a strategy common for ‘faders’ or ‘mean-reversion’ traders.  The list can alternately be used as a means to find stocks that have shown remarkable strength in the short term and might do so longer term (provided you do further analysis).

Let’s take a look at the top 10 stocks in the S&P 500 that are most overextended above and below their 20 day simple moving average.

Another way you can use this list is to find out if there’s a particular cluster of stocks in a given industry or sector.  In this case, there is – Financials.

Most of the top extended stocks are Financial Companies, like Fifth-Third Bankcorp, Prudential Financial, Capital One, and others.   Bank of America just missed the top-ten, coming in at #11.  Take a look at these stocks to get possible trading ideas as to whether you “fade the recent strength” or “go with it.”

Now, let’s now look at the Top Ten S&P 500 Stocks that are most extended beneath their 20 day Simple Moving Average:

Stocks that make the bottom of the list are extended less from their moving average, which reflects the recent market strength during the rally (the skew can help you see market strength).

Stocks in a list like these can give you additional trading or investing opportunities you might miss otherwise.

Corey Rosenbloom, CMT

4 Comments

4 Responses to “Top Stocks Extended from their Moving Average May 9”

  1. jim Says:

    Hi Corey,

    Thank you for the study.
    Can one conclude the stocks that are most overextended above and below their 20 day are good short candidates?

    Just wondering. I am currently short COF (at aprox @ 27), and trying to gage its monster move up.

    Thanks again, JIM

  2. chris Says:

    Jim,

    You've got me wondering about a holding I have in a similar stock and my conclusion is that it may be time to start taking some profits but its too soon to go full out on the short side, so thanks for this! In short I think your analysis is correct but timing is too soon…..so, I would be using tight stops if I were taking up this position and maintaining zero pride if I turned out to be wrong! As an aside I would use the movements of finacials as an indicator of a trend reversal so when signs of weakness do (as they inevitably will) start appear don't be afraid to take some profit.

    Chris

  3. chris Says:

    Jim,

    You've got me wondering about a holding I have in a similar stock and my conclusion is that it may be time to start taking some profits but its too soon to go full out on the short side, so thanks for this! In short I think your analysis is correct but timing is too soon…..so, I would be using tight stops if I were taking up this position and maintaining zero pride if I turned out to be wrong! As an aside I would use the movements of finacials as an indicator of a trend reversal so when signs of weakness do (as they inevitably will) start appear don't be afraid to take some profit.

    Chris

  4. Joe Says:

    I just turned 9 years old & very much enjoy trading. My sister set me up a broker account so I trade under her & have done well. I tried this method & boy oh boy does it work cheerful. thanks so much.