Top Ten Stocks Extended Beyond their Moving Average

Aug 2, 2008: 7:27 PM CST

Earlier, I looked at the top and bottom 10 stocks by average true range and percent of average true range.  Now, let’s examine the Top 10 stocks in the S&P 500 extended the greatest distance above and beneath their 20 day simple moving average.

Top 10 Stocks (above $10) most extended above their 20 day SMA:

The top two stocks showing up on this list (created with TradeStation) are financial stocks, which have rallied strongly after a miserable downtrend overtook them.  Wachovia Bank (WB), #1 on the list, has more than doubled since its low beneath $9 per share not too long ago.  Bank of America (BAC) is right behind it. Actually four of the top ten are bank or financial stocks.

International Paper (IP) and Radio Shack (RSH) come in and 3rd and 4th on the list, and a surprise list from Amgen (AMGN) squeaked in at #9.  Also retailer Avon Products (AVP) comes in at #8.

What about the stocks most extended beneath their key 20 day moving average?

What shocks me about this list is the number of oil and gas services/operations stocks or energy stocks that made the list.  Five of the bottom 10 stocks are energy/oil related (CNX – Consol Energy; STR – Questar Corp; RRC – Range Resources; COG – Cabot Oil & Gas; and XTO – EXO Energy).

This is a surprising turnaround from what we’ve seen for the majority of 2008, and it is clearly worth further attention.

Beyond insights like this, in terms of what’s hot and cold right now, you can use this list to find potential mean-reversion trades, or you can keep these stocks in some sort of watch-list for potential continuation moves.  How you use the lists is up to you, but being aware of these overxtensions can help you in making trading decisions or selecting candidates.

There’s a constant battle between those who advocate “mean reversion” (meaning these stocks should retrace back to their 20 period SMA) and “momentum” strategies (what’s strong will continue to get stronger and what’s weak will continue to get weaker).

See if your own studies of some of these stock charts may warrant further attention, or if you see any interesting developments or chart patterns that you may find tempting to act upon.

5 Comments

5 Responses to “Top Ten Stocks Extended Beyond their Moving Average”

  1. Terry Says:

    Hi Corey, thank you for an excellent blog to help other people. For cases like BAC during these times, are RENKO charts reliable to tell us trends or directions? Or do we rely on overbought/oversold ? or fundamentals and stay away from banks?

  2. thomas Says:

    How did you calculate the % from MA in TradeStation?

  3. Corey Rosenbloom Says:

    Thomas,

    The simple code I programmed is the following:

    input:
    length( 20 );

    Value1 = ((close – average( close, length))/(average( close, length))) ;
    Plot1( Value1, “Plot1” ) ;

    Thanks!

  4. Corey Rosenbloom Says:

    Terry,

    Thank you for your comment and support.

    I am not familiar with Renko charts so I cannot be of assistance there. I use candle charts and measure swing highs and lows, as well as moving average orientation, to determine trend.

    Overbought/sold indicators fail and are essentially useless in ‘run-away’ or grossly extended trends – what is overbought (as in RSI or stochastic) will continue to get more overbought in a dramatic trend, so these aren’t as valuable.

    Often, price leads fundamentals, such as the price will bottom (or reverse) ahead of fundamentals (or news) and also emotion/psychology can drive prices well beyond rational fundamental valuation.

    How you trade overextended stocks is your preference, and I recommend finding a strategy and deploying it consistently, whatever it is you choose (fade strength or to go with strength).

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