Corey Rosenbloom of AfraidToTrade.com shows how you can use these scans and similar extended-stock from moving average scans to identify trading candidates that you may not find otherwise.
For this month's update of the Top Five S&P 500 Stocks Most Extended from their 200-Day SMA, we have two very popular stock names on opposite sides of the scanning results.
Let's take a look at the other stocks that made the list and what opportunities these stocks may provide.
The Top SP500 Overextended Stocks above their 200 day SMA:
It took almost a full year to carve out a classic and beautiful "rounded reversal" pattern through 2012 and we see the outcome of the successful reversal.
Aggressive traders-especially those with longer time horizons-look to accumulate shares gradually over time as a stock is 'carving out' a bottoming pattern especially with divergences present.
Conservative traders, or those with shorter time horizons, tend to wait to join trends in motion on breakouts or retracements (like flag trades or pullbacks to rising moving averages).
In fact, that's exactly how you can use a simple stock screen like the overextended scan:
Some traders prefer reversal strategies and will note that overextended stocks in nature will eventually reverse and they want to play for that elusive top or bottom; however, other traders who prefer pro-trend strategies (trading breakouts and retracements) will use this list as a starting point to locate current or future retracement opportunities.
A sharp retracement currently occurred in the #4 overextended stock, Valero Energy (VLO):
I also highlighted two prior lengthy 'retracements' that took the form of larger bull flags or "AB=CD" measured move patterns.
NEXT PAGE: Under-Extended Stocks