Overbought Stocks (7/21/09)

With the S&P 500 rallying 8% since last Monday, there are lots of stocks now trading well above their 50-day moving averages. Below we highlight the stocks trading the furthest above their 50-days at the moment. As shown, Whirlpool (WHR) is the furthest above its 50-day at 26.74%. WHR is followed by SLM, SNDK, AKS, and LSI. Other notable names on the list of overbought stocks include Intel (INTC), US Steel (X), American Express (AXP), and Texas Instruments (TXN). If you think we're due for a pullback after 6 straight days of gains for the Dow, the names below could see reversals.

click to enlarge

There are stocks that remain well below their 50-days, however. Two usual suspects are at the top of the list -- CIT and AIG. Citigroup (C) remains 16.8% below its 50-day, and key energy names like Tesoro (TSO), Sunoco (SUN), and Hess (HES) are also on the list.

Comments

[David White:]

radicall: I believe the implication was that the stocks that were far under their 50-dma's were possibly oversold.

Jul 20 09:02 PM

[FitBusiness...:]

Aren't most S&P stocks overbought if you compare them to their earnings?

I mean, these companies are earning 15-30% less than they were y/o/y, yet the adjustment has not shown in their stock price.


I agree with Herbert:
"Why not just put the S&P 500 up there?

I wouldn't touch any stocks at these prices if I was playing with someone else's money! I'd rather sit in cash forever."


There is a reason that banks still are not lending to these companies...IT'S STILL TOO RISKY. And the lending has greater probabilities of resulting in a loss.

Are we not "lending" money as a shareholder? Are we not "lending" money as a bondholder?

Just watch what the banks do;)

Jul 21 09:29 AM

[Windsun33:]

While I agree that much of the market is overbought, "watching what the banks do" is not some advice I would follow.

I mean, look how well banks have done since 2007...

On Jul 21 09:29 AM FitBusinessman.com wrote:

> Aren't most S&P stocks overbought if you compare them to their
> earnings?
> ....
> Just watch what the banks do;)

Jul 21 10:51 AM

[AndrewBaker:]

These prices are there for those holding to take a profit. (If you've got no profit, you shouldn't be holding in the first place at this level.)

The good stocks will drop with the bad and give an opportunity to buy back in at a lower price, giving another opportunity to take a profit on the next bounce.

If you're buying and holding ... why?

Jul 21 11:10 AM

[MSA:]

Rather simplistic here boys - I guess if all one had to do was gauge a stock by where it is relative to its 50dma then investing would be a snap. NOT ! ! !

Jul 21 11:24 AM

[bobbobwhite:]

All shippers, natural gas, coal; many oils, most steels, all mining and construction equipment......all far below year ago levels. These have the most to gain and the least to lose from here, and the only sectors I would buy at today's mostly inflated levels relative to risk.

Jul 21 11:41 AM

[Harry L:]

Looks to me that most stocks above their 50 day MA are good companies that are leading market comeback. Although it might be a good idea to sell them now to take profits, I would not replace them with stocks that have not performed as well. As usual, it all depends on where you think the market is heading.

Jul 21 12:05 PM

[Henry Buttal:]

Bespoke,
Thanks for providing the data. My positioning on these and other similar performing stocks (except for resource holdings) currently is watch and see if we break above 960 on the S&P and show strength.

If no new money comes in, and the numbers and volume weaken, then some of the above will become short candidates.

Jul 21 04:30 PM

[tobi:]

I am watching for the point at which the market rising becomes an almost self driving process of sideline cash coming in, it would make a perfect quick trade just like last week. Am I the only person that so far 2009 strongly reminds of 2008 ? Commodities rising, China will safe us all. But I can't think of another lehman like h bomb this september, more likely there will be constantly high loan losses crippling financial institutions.
Concerning unemployment, the more important question is not how far it will rise but how there will be new jobs. Where should they come from ? Stimulus jobs can't replace high paying financial industry jobs.

Jul 21 05:37 PM

[ozcutty2:]

Agree AXP, DFS, HOG will not piot good earnings for a while yet so their stocks could flatline or sink.
Other stocks like Banking and Insurance and assett managers have seen the worst, shorting them would be dangerous.

Jul 21 08:09 PM

[Rod:]

Watch what the banks do?? Is that kinda like "Do as I say, not as I do?" If you'd done what the banks did, you'd have suffered massive hemorrhaging and been begging the taxpayers for money so you could keep your job. Seriously.


On Jul 21 09:29 AM FitBusinessman.com wrote:

> Aren't most S&P stocks overbought if you compare them to their
> earnings?
>
> I mean, these companies are earning 15-30% less than they were y/o/y,
> yet the adjustment has not shown in their stock price.
>
>
> I agree with Herbert:
> "Why not just put the S&P 500 up there?
>
> I wouldn't touch any stocks at these prices if I was playing with
> someone else's money! I'd rather sit in cash forever."
>
>
> There is a reason that banks still are not lending to these companies...IT'S
> STILL TOO RISKY. And the lending has greater probabilities of resulting
> in a loss.
>
> Are we not "lending" money as a shareholder? Are we not "lending"
> money as a bondholder?
>
> Just watch what the banks do;)

Jul 22 07:34 AM

[Mad Hedge F...:]

Let me tell you that I, and the rest of the hedge fund industry, are highly suspicious of the global stock market rally that has ensued over the past week. Companies lowered earnings expectations so far they were easy to beat, and could be achieved by laying off a few more workers. The question this raises is how the economy moves forward with skyrocketing unemployment. Now that we have double topped in the S&P 500 at 956, even the bulls are saying we only have another 4% to go. This on a day when we are all wondering if commercial real estate loans will be the stick that breaks the back of the banking industry. Mike Mayo, a banking analyst with Clayon Securities, says that the industry may have to write off a quarter of its $7 trillion loan book over the next three years, levels greater than seen during the Great Depression. While banks are making a lot of money trading, they are losing it even faster in loan losses. It’s like trying to fill a barrel with water that has been perforated with a shotgun blast. If you are playing from the long side here, keep one foot in the exit, and a finger right on your mouse.

Jul 22 01:52 PM

[WhoisJohnGalt:]

Some people just can't enough of the rally, if you look at option volume and directionality on whatstrading.com for the overvalued stocks (even as of today), they're banking heavily on continued growth.

Jul 22 05:11 PM

[User 459267:]

Weren't you the same guy who was telling us a week ago that the market had formed a head and shoulders top and you had a bet on the short side? For someone that drops names and experiences as much as you do, you really don't know much.


On Jul 22 01:52 PM Mad Hedge Fund Trader wrote:

> Let me tell you that I, and the rest of the hedge fund industry,
> are highly suspicious of the global stock market rally that has ensued
> over the past week. Companies lowered earnings expectations so far
> they were easy to beat, and could be achieved by laying off a few
> more workers. The question this raises is how the economy moves forward
> with skyrocketing unemployment. Now that we have double topped in
> the S&P 500 at 956, even the bulls are saying we only have another
> 4% to go. This on a day when we are all wondering if commercial real
> estate loans will be the stick that breaks the back of the banking
> industry. Mike Mayo, a banking analyst with Clayon Securities, says
> that the industry may have to write off a quarter of its $7 trillion
> loan book over the next three years, levels greater than seen during
> the Great Depression. While banks are making a lot of money trading,
> they are losing it even faster in loan losses. It’s like trying to
> fill a barrel with water that has been perforated with a shotgun
> blast. If you are playing from the long side here, keep one foot
> in the exit, and a finger right on your mouse.

Jul 23 11:30 AM

[ScroogeMcduck:]

You gotta be in it to win it

Jul 23 03:29 PM

[Mad Hedge F...:]

Looks like a great short list to me. There is no doubt that the next trade from here in stocks is a sell. Buying NASDAQ on a 12th consecutive up day, the S&P 500 on the back of a 110 point move, and the Dow on top of a 1,000 point pop is not what great fortunes are made of. After stopping out of my own shorts in the 880’s, I have been holding back, holding back, holding back. See my warning not to sell too soon at www.madhedgefundtrader.... I have never been one to fight the tape. The only trader who is always right is Mr. Market. The earnings to support a full fledged bull market are not just there. Deleveraging worlds don’t support expanding earnings multiples. It all works for me because the more it goes up now, the bigger the fall later. Even the raging bulls are warning about a “W” shaped recession and another market dive in 2010. How finely do you want to trade this thing? It’s clear the big core shorts at the major hedge funds haven’t budged, and that most of the recent low volume action has come from day traders, momentum players and CTA’s. All we need now is for mom and pop to come in and ring the bell at the top. Is 2009 going to be replay of 2008? Is a “Sell in May and go Away” at www.madhedgefundtrader... to be followed by another October crash? If your friends’ long positions make money from here, just revel in their good fortune, and let them pick up the dinner check.

Jul 23 06:37 PM

[Mark Mansfield:]

Throw WLT on that list... approximately 35% above its 50d.

Jul 24 12:22 AM

[Avooch:]

Agreed - here is some indepth coverage of Capital Goods OEM's

gudovac1941.blogspot.c...


On Jul 20 08:17 PM herbert hoover wrote:

> Why not just put the S&P 500 up there?
>
> I wouldn't touch any stocks at these prices if I was playing with
> someone else's money! I'd rather sit in cash forever.

Jul 24 11:33 AM

[bricki:]

Last July 25 the S&P 500 index was 1257. Now it is 979.

That is pretty much a 30% difference depending on how you cast the numbers.

The thing is though that both of these numbers are hard to justify.

While I've done pretty well the last fews months I am very skittish right now. I saved myself a lot of pain last year by being skittish so...

On Jul 21 09:29 AM FitBusinessman.com wrote:

> Aren't most S&P stocks overbought if you compare them to their
> earnings?
>
> I mean, these companies are earning 15-30% less than they were y/o/y,
> yet the adjustment has not shown in their stock price.
>
>
> I agree with Herbert:
> "Why not just put the S&P 500 up there?
>
> I wouldn't touch any stocks at these prices if I was playing with
> someone else's money! I'd rather sit in cash forever."
>
>
> There is a reason that banks still are not lending to these companies...IT'S
> STILL TOO RISKY. And the lending has greater probabilities of resulting
> in a loss.
>
> Are we not "lending" money as a shareholder? Are we not "lending"
> money as a bondholder?
>
> Just watch what the banks do;)

Jul 24 08:55 PM

[Glen Bradford:]

$SLM Cheap. Glad to know that your definition of overbought has nothing to do with what the underlying value of the company being traded is actually worth.

Example:
Where I come from, the 50 day moving average of home purchase fluctuations doesn't imply overbought. If you have a home trading around $1M with minor fluctuations over the past 50 days and it's really worth $100K, I would say that it is overbought but you wouldn't even pick it up on your screen.

Jul 25 02:48 PM