Technical analyst Corey Rosenbloom, CMT, of AfraidToTrade.com takes a look at top stocks that are most over or under extended from their respective 200d SMA for potential trading opportunities.
Depending on your style of trading, you can use these scans for aggressive “fade/reversal” opportunities or pro-trend retracement style strategies.
Here are the stocks most over-extended from their rising 200d SMA:
In general, we don’t count stocks that are trading under $10.00 into the scans because the low price distorts the percentage movement. While Sprint (S) is the most overextended stock, it’s also trading at $5.50 and is 53% overextended above the 200d SMA (at $3.75).
For swing trading opportunities, we tend to focus on stocks that have higher prices and thus are more likely to make larger dollar movements. I’m showing the charts of the #2 and #3 most overextended stocks in the S&P 500 below, which are Pulte Homes (PHM), a popular homebuilder, and Gilead Sciences (GILD), a pharmaceutical company):
Interestingly, Pulte Homes (PHM) is at a similar inflection point that we can see in Gilead (GILD) in terms of price retracing—in a known uptrend—to the rising 50-day EMA, which is often a ‘make or break’ level for trends.
GILD successfully rallied off the 50d EMA and PHM similarly will either rally up in a pro-trend retracement trading opportunity or else break sharply under it for a trend reversal trading opportunity.
This also gives us a sense of how you can use these scans for your own trading style.
If you prefer to trade trend reversals or ‘fade’ overextended stocks, then these stocks represent the most overextended stocks from their 200d SMA and may reverse.
If instead you are more like me and prefer to find pro-trend retracement-to-support trading opportunities (like flags or trades off rising moving averages), you can place these stocks into a watchlist and look to enter when price retraces to the 20- or 50-day moving average or other pivot/reference level.
While PHM currently challenges the support of the rising 50d EMA, we see clear negative divergences in momentum and price, which raise the caution flag for a potential reversal, which would trigger on a breakdown under $16 and the $15.50 (prior support low) level.
NEXT PAGE: Most Under Extended Stocks