Scanning for the Most Extended Stocks
09/19/2013 7:00 am EST
Running these scans can become starting points for you to do other research to see whether trading opportunities exist based on your strategies, writes technician Corey Rosenbloom of AfraidToTrade.com.
It’s time to update our Most Over and Under-Extended Stock scans for the month of September!
Let’s start our search with the top six stocks most over-extended (on a percentage basis) up away from their rising 200-day simple moving averages:
It’s often interesting how a strong stock (or weak stock) can remain in the “top extended list” month after month, and that’s part of the purposes of the scan.
We want to locate strongly trending stocks with incoming money flow and use them either as trading vehicles (buying retracements or flag patterns) or investing candidates (holding for as long as possible until the trend structure reverses).
This type of simple scan helps us achieve these goals.
For example, take a look at a few prior updates on GameStop (GME), a stock that has consistently appeared in “top trending” stock lists (along with Best Buy lately):
Back to the current candidates, Best Buy (BBY) tops the list with a 67% reading above its rising 200-day SMA.
The goal of this type of scan is to find powerful pro-trending names to trade (conservative strategy), or candidates to look for aggressive reversals or fade trades (not my preferred use of this list).
The same logic can be applied to the “weak and getting weaker” stocks most under-extended from their falling 200-day SMA:
These scans are starting points or launch-pads for you to do other research to see whether trading opportunities exist based on your strategies.
The “over and under-extended scans” can bring candidates to your attention that may otherwise not show up on other stock screens.
By Corey Rosenbloom, CMT, Trader and Blogger, AfraidToTrade.com