With the S&P 500 Index notching its 16th record close of the year, it is not surprising that a number of stocks are overbought, says MoneyShow's Tom Aspray, but his weekly scan also identified stocks that look attractive when the inevitable pullback occurs.
Stocks continued higher for the fourth week in a row as the major averages have already easily exceeded the most bullish Wall Street forecasts for the entire year. All of the major averages are all showing double-digit gains, which was suggested in late 2012 by the upside breakout of the NYSE A/D line.
The weekly and daily technical studies continue to support higher prices but the risk is high in establishing new positions in the major averages. The last significant swing low in the Spyder Trust (SPY) was at $153.55, which is just over 8% below last Friday's close. There are still stocks that have completed continuation patterns or that have pulled back to good support while the major averages have moved higher. Therefore, finding high-probability entry levels where the risk can be well controlled is still the key.
Because of the market's strength, I was not surprised that my weekly scan of the stocks in the S&P 500 revealed that 23 closed above their weekly starc+ bands on Friday. Of course, this does not automatically rule buying one of these stocks but definitely should be factored in when one is determining an entry level.
In the table above, those stocks that are highlighted in red also closed last week above the monthly starc+ bands for May, which is a more important sign of them being in at a high risk buy level. I often use these levels, in conjunction with pivot and Fibonacci levels, to determine profit taking levels. Those who are long any of these stocks should consider taking some profits now if they have not done so already.
The fact that the Spyder Trust (SPY) also closed the week above both its weekly and monthly starc+ bands does increase the probability of a lower weekly close in the next three-four weeks. Some of the stocks on the table are likely to be even higher later in the year after a normal correction occurs as their long-term patterns look strong.
Chart Analysis: The weekly chart of the Spyder Trust (SPY) shows how rare it is for it to close above the starc+ band. For the coming week, the starc+ band is at $167.67.
- The upper trading channel, line a, is in the $170
- The weekly NYSE Advance/Decline made further new highs last week
and continues to act strong as it is well above its rising WMA.
- The A/D line staged a major upside breakout in July
2012 as it moved through resistance at line c.
- Then in January, the trading range was resolved
(point 1), which was bullish.
- The weekly McClellan oscillator shows a pattern of higher lows
and is still well below overbought levels.
- As I tweeted over the weekend, the weekly and daily OBV on SPY (not shown) also confirmed the price action.
- There is minor support now in the $164.70-$165.50
area and then at $162.30-$162.80.
- The weekly chart shows that a bottom formation going back to late 2010 was completed just two weeks ago as it surged through the resistance at line d.
- The monthly R1 pivot resistance is at $10.31 with the
upside targets from the trading range at $11.25 (point 2).
- The relative performance moved above its WMA in late
2012 and then completed its bottom in January.
- The RS line has major resistance at line f.
- The weekly on-balance volume (OBV) closed above its WMA in early
- The major resistance for the OBV at line g was
overcome in early April
- There is first resistance at $8.45, which was last
week's close and then major in the $7.65-$8 area.
NEXT PAGE: 2 Stocks to Buy on Pullback