The neutral character of the current market means that looking to both the S&P 100 and Nasdaq 100 was required in order to come up with 7 stocks that short term, high probability traders need to know. All 7 stocks were selected based on the criteria in the book by Larry Connors and Cesar Alvarez, Short Term Trading Strategies That Work. To order your copy of Short Term Trading Strategies That Work, which includes 16 objective, quantified strategies for trading stocks (and ETFs) in bull, bear and sideways markets, click here.
Now let's take a look at the stocks.
Unsurprisingly, most of the stocks in today's list are overbought rather than oversold. This is the result of recent market strength that, even with Tuesday's sell-off, has left many stocks at levels from which they have historically reversed and moved lower.
One such stock is General Electric Co (GE), which closed higher for four days in a row leading into Wednesday's trading. This short term rally has kept GE in overbought territory below the 200-day moving average for the past two days.
GE was last at these levels at the beginning of August, shortly before dropping more than 12% over the first half of the month.
Also overbought below the 200-day are shares of Walgreen Co (WAG) (below).
Walgreen has also closed higher for four consecutive trading days, making a new short term high in the process (the highest close since August 2). The stock has been relatively rangebound for much of the late summer. But the move into extreme territory below the 200-day may create opportunities for traders looking to take advantage of a market that may be moving too far too fast to the upside.
Raytheon Co (RTN) is another stock that may belong in the "too far too fast to the upside" category. Also up four days in a row heading into Wednesday's trading, sellers have already spotted the overbought stock and begun moving in - sending shares of RTN down by well over 1% within the first few minutes of Wednesday's open.
The Nasdaq 100 is also home to a number of stocks that have become overbought below the 200-day moving average. Among these, three are well-known technology stocks: Marvell Technology Group (MRVL), Logitech Intl Sa Ord (LOGI), and NVIDIA Corporation (NVDA) (below).
Both Nvidia Corporation and Marvell Technologies have made four consecutive higher closes going into Wednesday's trading. Logitech is up four of the past five days ahead of Wednesday's open, and is moving above its 200-day moving average early in Wednesday's trading.
Another overbought stock from the Nasdaq 100 that short term, high probability traders will be keeping an eye on is Teva Pharm Ind (TEVA).
Shares of TEVA were in an exceptionally tight trading range for much of August. But buyers have been pouring into the stock in recent days, creating five consecutive highs and significant strength again early in Wednesday's trading. Arguably, TEVA may be the most overbought stock in the Nasdaq 100.
Last but not least, for traders who prefer to trade from the long side, there is at least one stock worth keeping an eye on: Check Point Software Technologies Inc (CHKP).
Monday and Tuesday saw sellers thoroughly dominate this stock, with profit-taking from the stock's rally from $28 to $36 over the past two months sending the stock down into oversold territory above the 200-day. As sharp as the two-day pullback has been, CHKP did not make a new short term low during the pullback and has neared territory from which it has historically founds buyers and room to rally - most recently in mid-August.
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David Penn is Editor in Chief at TradingMarkets.com.
