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Stocks were off to a strong start again on Monday, with both the Dow industrials and the S&P 500 looking to mark their fourth consecutive higher high.
Want to go short? Looking to go long? Traders looking at our TradingMarkets Stock Indicators rosters of stocks that have been both up and down by 10% or more will notice good sized lists of stocks on both sides of the ledger.
But there's no doubt that - as voluminous as those two lists are - the number of stocks that are below their 200-day moving average and up by 10% or more over the past five days is massive. This should not be surprising as the markets are increasingly overbought as they rally off the lows established last week.
Our research into short term stock price behavior indicates that stocks that are trading below their 200-day moving averages and are up by 10% or more within five days have produced negative returns in one-day, two-day and one-week timeframes. But given the huge number of stocks in this screen as of this morning, I have added an additional condition that should only further isolate those stocks that are the most overextended to the upside and vulnerable to reversal.
I have done this by including in this report only those stocks that - in addition to being under the 200-day moving average and up 10% or more in five days - also have 2-period RSIs of 99 or more. Our research further notes that stocks trading under their 200-day moving averages with 2-period RSIs of more than 98 have also been historically vulnerable to reversal and underperformance.
Bio-Reference Labs Inc. (BRLI | Quote | Chart | News | PowerRating) Short Term PowerRating 2. RSI(2): 99.14
Cubic Corporation (CUB | Quote | Chart | News | PowerRating) Short Term PowerRating 2. RSI(2): 99.10
Pinnacle Financial Partners (PNFP | Quote | Chart | News | PowerRating) Short Term PowerRating 2. RSI(2): 99.02
Valspar Corporation (VAL | Quote | Chart | News | PowerRating) Short Term PowerRating 2. RSI(2): 99.16
Gaylord Entertainment Company (GET | Quote | Chart | News | PowerRating) Short Term PowerRating 1. RSI(2): 99.49
As of 10:30 a.m. EST, all of these stocks were still very overbought, some of them even more so given the buying that has pushed stocks higher in general today. This should provide plenty of opportunity for traders looking to take positions against stocks with the intraday strength they need to get in at the highest possible levels.
David Penn is Senior Editor at TradingMarkets.com.
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