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The 15 Most Overbought S&P 500 Stocks


With the S&P 500 Index notching its 16th record close of the year, it is not surprising that a number of stocks are overbought.


Stocks continued higher for the fourth week in a row as the major averages have already easily exceeded the most bullish Wall Street forecasts for the entire year. All of the major averages are all showing double-digit gains, which was suggested in late 2012 by the upside breakout of the NYSE A/D line.

The weekly and daily technical studies continue to support higher prices but the risk is high in establishing new positions in the major averages. The last significant swing low in the SPDR S&P 500 Trust ETF (NYSEARCA:SPY) was at $153.55, which is just over 8% below last Friday's close. There are still stocks that have completed continuation patterns or that have pulled back to good support while the major averages have moved higher. Therefore, finding high-probability entry levels where the risk can be well controlled is still the key.

Because of the market's strength, I was not surprised that my weekly scan of the stocks in the S&P 500 (INDEXSP:.INX) revealed that 23 closed above their weekly starc+ bands on Friday. Of course, this does not automatically rule buying one of these stocks but definitely should be factored in when one is determining an entry level.

In the table above, those stocks that are highlighted in red also closed last week above the monthly starc+ bands for May, which is a more important sign of them being in at a high risk buy level. I often use these levels, in conjunction with pivot and Fibonacci levels, to determine profit taking levels. Those who are long any of these stocks should consider taking some profits now if they have not done so already.

The fact that the Spyder Trust also closed the week above both its weekly and monthly starc+ bands does increase the probability of a lower weekly close in the next three-four weeks. Some of the stocks on the table are likely to be even higher later in the year after a normal correction occurs as their long-term patterns look strong.

Chart Analysis: The weekly chart of the Spyder Trust shows how rare it is for it to close above the starc+ band. For the coming week, the starc+ band is at $167.67.

  • The upper trading channel, line a, is in the $170 area.
  • The weekly NYSE Advance/Decline made further new highs last week and continues to act strong as it is well above its rising WMA.
  • The A/D line staged a major upside breakout in July 2012 as it moved through resistance at line c.
  • Then in January, the trading range was resolved (point 1), which was bullish.
  • The weekly McClellan oscillator shows a pattern of higher lows and is still well below overbought levels.
  • As I tweeted over the weekend, the weekly and daily OBV on SPY (not shown) also confirmed the price action.
  • There is minor support now in the $164.70-$165.50 area and then at $162.30-$162.80.
Boston Scientific Corporation (NYSE:BSX) is a $12.29 billion manufacturer of medical appliances and equipment. BSX had a low of $4.79 in July 2012 and is up 90% from the lows.
  • The weekly chart shows that a bottom formation going back to late 2010 was completed just two weeks ago as it surged through the resistance at line d.
  • The monthly R1 pivot resistance is at $10.31 with the upside targets from the trading range at $11.25 (point 2).
  • The relative performance moved above its WMA in late 2012 and then completed its bottom in January.
  • The RS line has major resistance at line f.
  • The weekly on-balance volume (OBV) closed above its WMA in early January.
  • The major resistance for the OBV at line g was overcome in early April
  • There is first resistance at $8.45, which was last week's close and then major in the $7.65-$8 area.

Two Stocks to Buy on Pullback

Northrop Grumman Corp. (NYSE:NOC) was a stock recommended in early December but several weeks later it dropped below the prior two month lows and hit my stop.

  • In the middle of April, NOC overcame major resistance, line a, at $71.30.
  • This completed the trading range with upside targets in the $82-$84 area, which have already been met.
  • NOC closed last Friday well above both the monthly and weekly starc+ band.
  • The uptrend in the relative performance, line b, was broken as the stop was hit.
  • The downtrend in the RS line, line c, was broken in late April, and it is now rising very sharply.
  • The weekly OBV broke through its resistance, line d, in December and held above its WMA even while the stock was dropping.
  • The OBV started to move sharply higher in March and is now acting very strong as volume was very heavy last Friday.
  • There is initial support in the $73.50-$74.40 area.
Microsoft Corp. (NASDAQ:MSFT) has had an incredible run from the December lows at $26.26 and then gapped above its downtrend, line f, in late April.
  • The 2012 highs at $32.95, line e, were overcome three weeks ago.
  • In 2007, MSFT made its all-time high of $37.50. (Correction: This was the high in 2007 as the all time high at $59.97 was made at the end of 1999)
  • The relative performance broke its uptrend line g, last summer indicating it was underperforming the S&P 500.
  • This changed the week ending April 20 when the downtrend in the RS line (line h) was broken as MSFT closed at $29.76.
  • The OBV moved through its resistance in early March, line I, and now looks very strong as it rising sharply.
  • There is first support at the 2012 highs and then at $30.65 to $31.70

What It Means: Boston Scientific Corporation is the one stock of the three that I will be watching carefully on a correction because of its long-term base formation. Typically, when you get this level of overbought readings, a multiple week correction is likely.

I had the right idea on Northrop Grumman Corp.but just got in too early and was stopped out. Then I missed the opportunity to get back in.

I made some nice profits in Microsoft Corp. in 2012 but weakness in the tech sector early in the year kept me on the sidelines.

How to Profit: No new recommendations for now but keep an eye on my Twitter feed as there are several stocks that look interesting despite the overextended status of the averages.

Editor's Note: This article was written by Tom Aspray of MoneyShow.

Below, find some more great investing and trading content from MoneyShow:

The Week Ahead: Did Wall Street Strategists Jinx Stocks?

A Commodity ETF Growing Like a Weed

The Week Ahead: Will Overseas Markets Lead the Way?

Twitter: @TopProsTopPicks

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