The Nasdaq 100's Most Overbought

03/03/2015 10:00 am EST

Focus: STOCKS

Thomas Aspray

, Professional Trader & Analyst

Market leaders often appear at the top of the monthly starc band overbought list, says MoneyShow's Tom Aspray, and he takes a look at the Nasdaq 100 stocks for new buy candidates.

Stocks have started the new month off on a positive note with impressive gains across the board that reversed the loss of momentum from last Friday's listless trading. Of course, the close in the Nasdag Composite above 5000 was the headline news as it reached its highest level in 15 years.

The Powershares QQQ Trust (QQQ) was up 0.98%, the iShares Russell 2000 (IWM) gained 0.89%. Both outperformed the Spyder Trust (SPY), which was up just 0.63%. The real star performer was the Market Vector Semiconductor ETF (SMH) as it gained 2.63%. This industry group was the focus of January's Will These Stocks Ignite the Tech Sector.

In one of my several monthly scans, I noted that four of the Nasdaq 100 stocks closed the month above their starc+ bands. These bands, developed by Manning Stoller, are designed to contain over 92% of the price activity. Therefore, when a stock or ETF is near the upper bands (starc+) it is a higher risk buy as prices are more likely to consolidate or revert to the lower bands (starc-).

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As I have also pointed out in the past, those stocks that are at or above their monthly starc+ bands typically are those which are outperforming the S&P 500. This makes them attractive candidates for new buying if a reasonable risk entry strategy can be developed.

In the current analysis, Avago Technologies (AVGO) tops the list as it closed February 5.3% above its monthly starc+ band. It first closed above its monthly starc+ band in December 2013. It gained 92.5% in 2014 and is already up 28.2% in 2015.

Several of these most overbought stocks have been featured in columns over the past five months. One of the recent most overbought stocks had enough of a pullback to reach the recommended buy level. Are any of this month's most overbought attractive for new purchase?

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Chart Analysis: The monthly chart of the PowerShares QQQ Trust (QQQ) shows the strong close above the prior three month highs, which clearly reinforces the positive long-term trend.

  • The monthly starc+ band is at $114.52 with the quarterly projected pivot resistance at $115.62.
  • The relative performance moved above its WMA in August 2013 signaling that it was starting to outperform the Spyder Trust (SPY).
  • The RS line broke through resistance, line b, in July 2014, which was another sign of strength.
  • Since July 2012, the monthly OBV has held above its WMA except for the one month drop in April 2014.
  • The OBV did make a new high in November and retested its WMA in January.
  • The weekly OBV has been diverging from prices since November so it is important that the OBV does not drop below the January lows.
  • There is three month support now in the $99.36-$99.75 area.
  • The long-term uptrend, line a, is in the $96 area

Monster Beverage Corp. (MNST) was discussed in early January as the daily studies had just turned positive and the longer-term analysis was already bullish. The stock skyrocketed last week as it was up over 13% on Friday.

  • The long-term monthly chart shows the close above long-term resistance, line d, in October 2014.
  • The upside target from the trading range is in the $148-$152 area.
  • The monthly projected pivot resistance is at $162.44.
  • The monthly RS broke its downtrend, line e, in August 2014, two months before prices broke out to the upside.
  • The RS line is rising very sharply now confirming it is a market leader.
  • The monthly OBV analysis has been leading MNST higher since November 2013 when it moved above its WMA.
  • The OBV closed at a new high in February and the weekly OBV also confirmed the new highs.
  • The correction in January took MNST to a low of $111.92, which was just above our recommended buy level of $111.64.
  • The 20-day EMA is well below current levels at $124.99.

Next: Two More Nasdaq 100 Stocks to Watch

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Verisk Analytics, Inc. (VRSK) is an $11.36 billion dollar business services company that was down -2.54% in 2014 but is up 12.21% in 2015.

  • The close in February was above the 2013 high at $69.09, line a.
  • It was also well above January's doji high of $65.34, so a high close doji buy signal was triggered.
  • This completed a $13 trading range, so the upside target is at $80-$82.
  • The monthly projected pivot resistance is at $81.08.
  • The monthly relative performance moved above its WMA in January.
  • The WMA of the RS line is still flat.
  • The monthly OBV broke through major resistance, line b, at the end of 2014.
  • The weekly technical studies have turned sharply higher and are clearly positive.
  • The monthly pivot is at $70.12 with the 20-day EMA at $67.97.
  • Stops would need to go under the $65.36 low from early February.

Texas Instruments Inc. (TXN) is part of the strong semiconductor industry group that I have liked for some time.

  • The monthly chart shows that TXN formed dojis in both December and January with February's close well above the highs.
  • It is still 2.9% below its monthly starc+ band at $60.50.
  • The quarterly projected pivot resistance is at $64.62.
  • The monthly RS line broke out to new highs in October as resistance at line c, was overcome.
  • The monthly OBV completed its bottom formation in 2012.
  • The weekly technical studies did confirm the most recent highs.
  • It has stayed above its WMA for over two years, with good support at line d.
  • The 20-day EMA is at $57.18 with the monthly pivot at $56.90.
  • The monthly projected pivot support is at $54.31.

What it Means: The power of the monthly charts is evident in the performance of the PowerShares QQQ Trust (QQQ) as well as many of the top performing stocks from 2014. That is why a combination of the monthly with the weekly studies was the focus of A Six-Point Checklist for a Profitable 2015.

The recommending buying level for Monster Beverage Corp. (MNST) was just missed, while the January 26 recommended buy level for Texas Instruments Inc. (TXN) was hit. I would recommend buying Verisk Analytics, Inc. (VRSK) on a pullback.

How to Profit: For Verisk Analytics, Inc. (VRSK) would go 50% long at $68.06 and 50% long at $67.88 with a stop at $65.13 (risk of approx. 4.2%).

Portfolio Update: For Texas Instruments Inc. (TXN) should be 50% long at $54.28 and 50% long at $53.66. Raise the stop now to $53.86. Sell 1/2 at $62.84 or better.

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