Are the Top 10 Global Stocks Overbought?

11/03/2014 10:15 am EST

Focus: STOCKS

Thomas Aspray

, Professional Trader & Analyst

Despite last week’s strength, most of the global markets did close the month lower, so MoneyShow’s Tom Aspray examines the multiple time analysis of four of the top ten global stocks to determine if they were overbought or oversold.

Last week’s impressive close pushed the major market averages well into positive territory for the month. The S&P 500 made another new record close in October with bullish enthusiasm strong by the end of the day. As noted in last week’s technical review Why Stocks Must Get Even Stronger, I pointed out that there were some troublesome signs despite last week’s gains.

The top sectors last week were the financials, health care, telecommunications, and industrials as all were up over 3%. Despite last week’s strength, most of the global markets did close the month lower unlike the 2.3% gain in the Spyder Trust (SPY).

In one of my many monthly ending scans, I decided to look at some of the top global stocks to determine whether they were overbought or oversold. This is based on my starc band analysis. At the October lows, the Spyder Trust (SPY) dropped below both its monthly and weekly starc- bands, which indicated they were a low risk buy at the lows but a high risk sell.

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Those who sold, or even worse, sold short at the October lows are already regretting it. The most overbought of the top ten global stocks is Avago Technologies (AVGO), which is a $21.8 billion dollar Singapore-based semiconductor stock.

It is up 24.8% in the past three months versus just a 4.39% gain in the Spyder Trust (SPY). As the table indicates, it is still 8.1% below its monthly starc+ band at $93.25. This is a sign that it can still move higher in November.

In examining the multiple time frame analysis of these top ten global stocks, these four look the most interesting.

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Chart Analysis: Baidu, Inc. (BIDU) is a well known $83.74 billion Chinese Internet provider that reported better than expected profits last week.

  • BIDU was up 9.4% in the past month but is still over 10% below its monthly starc+ band at $263.03.
  • This is very close to the quarterly projected pivot resistance at $263.25.
  • The breakout of the trading range, lines a and b, has upside targets in the $290-$300 area.
  • The strong monthly support, line a, at $194.32 was tested at last month’s lows.
  • The rising 20-month EMA is at $180.43.
  • The monthly relative performance broke through major resistance at line c, at the end of June.
  • This signaled that is was leading the S&P 500 higher.
  • The OBV staged a breakout (line e) in late 2013 but the monthly volume has been average for several years.
  • The weekly indicators (not shown) are strong and they made new highs last Friday.

Actavis (ACT) is a $64.1 specialty pharmaceutical company based in Ireland. It is up 44.5% YTD and is 12.4% below its monthly starc+ band.

  • The stock was flat for the month as it tested the monthly trend support (line f) last month before rebounding.
  • On a close above the September high at $250, the quarterly projected pivot resistance is at $279.07.
  • The low at $208.64 was just below the quarterly projected pivot support at $212.15.
  • The monthly relative performance has been above its WMA since early 2012.
  • The rising WMA was tested in early 2013.
  • The monthly on-balance volume (OBV) broke out to new highs in August and shows a clear pattern of higher highs and higher lows.
  • The OBV has major support at line h, and the weekly OBV (not shown) turned up from its WMA last week.
  • The rising 20-day EMA is at $235.04 with the quarterly pivot at $231.04.

NEXT PAGE: Two More Top Global Stocks to Watch

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HDFC Bank Ltd. (HDB) is an India-based financial services company that reported a 15% increase in earnings last Friday.

  • HDB was up over 12% in the past month and 53.1% YTD.
  • It is still 12.4% below its starc+ band even though it gapped higher and closed strong Friday.
  • The monthly chart support, line a, in the $47 area was tested last week as the quarterly pivot at $47.94 was broken early in the month.
  • The quarterly pivot resistance is at $54.05.
  • The flag formation, lines a and b, has upside targets in the $64-66 area.
  • The monthly RS line moved above its WMA at the end of March but is still below major resistance at line c.
  • The monthly OBV did move above major resistance in June as it confirmed the breakout in prices.
  • There is minor support now at 450.50 with the rising 20-day EMA at $49.59.

TAL Education Group (XRS) is a $2.51billion Chinese educational and training services company. It is up 44.4% YTD and is the least overbought of the top ten stocks.

  • The monthly chart shows that XRS tested its starc- band before closing the month over 9% lower.
  • The close last week was just above the 20-week EMA but below the quarterly pivot at $32.64.
  • The July highs have been tested with the quarterly projected pivot resistance at $28.55.
  • The monthly relative performance has turned lower but is well above its rising WMA.
  • The monthly OBV has also turned lower as the volume was high last week.
  • The OBV is still well above the uptrend, line h, and it’s rising WMA.
  • The weekly RS and OBV are both below their WMAs with the daily studies also negative.
  • The declining 20-day EMA is at $32.85 with the last swing high at $35.84.

What it Means: From their YTD performance it is clear that some emerging global companies can be winners for your portfolio. Several of these stocks are also part of some large mutual funds, which is the lowest risk way to participate.

As for new positions, HDFC Bank Ltd. (HDB) looks the most positive but it does not have the best balance sheet. It is currently too far above support but I will be looking for an entry point.

There are no clear signs that the correction in TAL Education Group (XRS) is over but will be waiting for new weekly buy signals.

How to Profit: No new recommendation.

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