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.
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