15 Most Overbought S&P 500 Stocks

09/17/2012 11:00 am EST


Thomas Aspray

, Professional Trader & Analyst

The weekly scan of S&P 500 stocks reveals not only those stocks that are vulnerable to profit taking, but also highlights those that may be the next market leaders. MoneyShow’s Tom Aspray has two he is watching closely.

Given last Thursday’s sharp rally and the surge in the NYSE Advance/Decline line, it should not be surprising that quite a few stocks are now overextended.

My weekly scan of the stocks in the S&P 500 reveals that quite a few stocks closed last week above or very close to their weekly Starc+ bands. As a reference, the Spyder Trust (SPY) closed last Friday at $147.92, which is 2.2 % below the weekly Starc+ band at $150.26.

It is important to remember that just because a stock closes above its weekly Starc+ band, it does not mean that the stock cannot still move even higher. But each consecutive week a stock closes either above its Starc+ or below its Starc- band, the odds increase that prices will at least consolidate, if not reverse.

As noted when gold was topping out in the summer of 2011, consecutive closes above the monthly Starc+ bands can warn of a change in trend that can last for many months.

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On the top of this week’s scan is Pall (PLL), a diversified machinery stock that is part of the industrial sector. Last Friday’s close at $64.08 was 1.8% above the weekly Starc+ band at $62.93. It is one of two industrial stocks on the top 15 table.

Other sectors are more widely represented. Over 30% are financial stocks, as this sector has been doing quite well over the past few months.

Often, stocks that are completing bottom formations will turn up in this scan, which can signal investors or traders to develop a plan to buy on a pullback. Two of the stocks I am focusing on should be bought on a correction, while another is sending out strong warning signals.

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Chart Analysis: Vulcan Materials (VMC) is a $6.3 billion industrial company that provides general construction materials. The stock soared last week, gaining close to 22%, and has been up for six days in a row.

  • In May 2007, VMC traded as high as $128.62. Therefore, the major 38.2% Fibonacci retracement resistance is at $65, with the 50% resistance at $77.

  • Last week’s close was above the two-year resistance (line a) in the $48.30 area.

  • The relative performance or RS analysis has broken a three-year downtrend (line c). This suggests that VMC may be ready to outperform the S&P 500.

  • Volume was pretty strong last week, as the on-balance volume (OBV) has moved above its downtrend (line d) and is close to making new highs for the year.

  • There is minor support now at $44.50 to $45 and the July highs, with stronger levels at $41.50 to $42.

Newmont Mining (NEM) is one of the more widely followed gold mining stocks. It has risen 33% from the July lows of $42.95. The long-term chart shows that the major chart resistance (line e) is now being tested.

  • NEM has reached the 50% retracement resistance from the November 2011 highs of $72.92. The more important 61.8% resistance is at $61.50.

  • The relative performance made new lows in July, and has just rallied back to resistance (line f).

  • The OBV also made lower lows (line g) before moving back above its WMA.

  • Volume was strong last week, so the next pullback will be important.

  • There is first good support at $52.33, which was the June high. There is further support in the $48.50 to $50 area.

NEXT: Chart Analysis from 2 More Sectors


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Goldman Sachs (GS) has had a tumultuous year, but was able to hold above the 2011 lows during the spring sell-off. There is next resistance at $128.73, with the monthly Starc+ band for September at $143.73.

  • The relative performance made marginal new lows in July, but has now moved back above its WMA.

  • The RS line needs to overcome the resistance (line c) to complete the weekly bottom formation.

  • The weekly OBV has improved over the past month, as it is now well above its rising WMA.

  • The OBV has major resistance at the downtrend (line d).

  • There is initial support now in the $110 to $112 area, with the rising 20-week EMA at $105.40.

Urban Outfitters (URBN) is a $5.8 billion specialty retail store that has been trading above its weekly Starc+ band for the past four weeks. The all-time high from 2010 is at $40.84 (line e).

  • A strong close above this level will complete a major trading range, with upside targets in the $55 to $58 area.

  • The relative performance topped out in 2010, as it started to form a pattern of lower lows.

  • The RS analysis now suggests an important low has been formed, as the bottom formation has been completed and the long-term downtrend (line g) has been broken.

  • The OBV also shows a completed bottom formation, as resistance (line h) has been overcome.

  • There is initial support now at $35, with stronger levels (line f) in the $32.60 area.

What it Means: The typical seasonal pattern, even in election years, is for stocks to correct toward the end of September. Last week’s ECB and Fed action have at least temporarily resolved the market’s concerns, so a correction may come from higher levels.

The two stocks that look the best are Vulcan Materials (VMC) and Urban Outfitters (URBN). Of course, the specialty retailers have a strong seasonal pattern into the end of the year. The recommended buy levels are well below current levels, and I may adjust them once the stock market starts to correct.

There are quite a few financial stocks on the top 15 list, and I am looking for other stocks in this sector that are not so overbought. If you have nice profits in any stocks on this list, you might consider taking some partial profits to raise some cash before a correction.

How to Profit: For Vulcan Materials (VMC), go 50% long at $43.72 and 50% long at $42.66, with a stop at $40.44 (risk of approx. 6.3%).

For Urban Outfitters (URBN), go 50% long at $33.68 and 50% long at $32.14, with a stop at $30.48 (risk of approx. 7.4%).

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