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
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