Technical signals suggest two of the most oversold stocks on the Nasdaq 100 are likely to underperform the broad markets, while two others appear to be good buys for after the ongoing correction.
The PowerShares QQQ Trust (QQQ), which tracks the Nasdaq 100 Index, was hit hard last week, declining 4.3% for the week, 1% worse than the Spyder Trust (SPY). QQQ is down 11.3% from the April 3 highs and closed last week just 0.6% above its weekly Starc- band.
Starc band analysis gives a reading of whether a stock is a high- or low-risk buy at the time. Close proximity to the upper Starc band (Starc+) means it is a high-risk time to buy since the stock is likely to at least move sideways, if not decline. Conversely, when a stock closes near its lower Starc band (Starc-), it is a high risk time to sell since the chances of a rebound are high.
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The table below shows the 15 Nasdaq 100 stocks that are closest to their weekly Starc- bands. At the top of the list is Cisco Systems (CSCO), which closed last week 1.5% below its weekly Starc- band.
Just because a stock is oversold does not automatically make it a buy, as one needs to do further analysis to isolate those stocks that are in intermediate uptrends and where the relative performance analysis indicates they are outperforming the S&P 500.
The top two stocks on the list have chart patterns and technical readings that indicate their recent strength was just a rebound within the major downtrends. Two of the most oversold stocks do look like long term buys on a test of more important chart and Fibonacci retracement support.
Chart Analysis: Cisco Systems Inc. (CSCO) peaked at $27.74 in April 2010 and lost just over half its value by August 2011 when it made a low of $13.30. By early-April 2012, it has rebounded to $21.30, which was just above the major 50% Fibonacci retracement resistance at $20.52.
Teva Pharmaceutical Industries (TEVA) is a $33 billion maker of generic drugs. TEVA closed below its uptrend, line d, two weeks ago, and is down 16% in the past three weeks. This completed the continuation pattern.