Overbought Stocks 27 comments
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The average stock in the S&P 500 is trading about 8% above its 50-day moving average, but the 25 stocks listed below are all more than 23% above their 50-days. AIG (AIG) is the most overbought stock in the S&P 500 at the moment, trading 59% above its 50-day. Eastman Kodak (EK) ranks second at 52.36%, followed by Textron (TXT), Advance Micro (AMD), Hartford Financial (HIG), and Genworth Financial (GNW). The stocks below have all soared in recent weeks as the market has charged higher. If the market does see a pullback soon, these names will likely be some of the hardest hit as they move from overbought to neutral.
Below we highlight the historical 50-day moving average spread (difference between current price and 50-DMA) for the two most overbought stocks in the S&P 500 at the moment -- AIG and EK. As shown, these stocks are at levels unseen since at least 2003.
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This article has 27 comments:
The rest of the list are more interesting. The two 2 I would just ignore.
I can only assume Bespoke would agree that when a stock demonstrates improving fundamentals, investors buy it (after all, like the stock market, investors buy on the assumption of future performance).
Furthermore, if it is a stock that had previously declined by 60, 70, 80, or 90% from where it was about 2 years ago (before the present recession), it will likely follow that it will be heavily overbought by definition.
I also agree with Bespoke...in my experience, stocks that have advanced the most, often decline the most in a correction.
I'm sure Bespoke did not infer that investors were stupid to have bid up the price of those stocks that advanced beyond the advance of the broad market (or S+P's 8% advance).
So, is there anything new to be learned by this article?
Is it overbuying or just people taking their profits on a market correction?
AMD is different from AIG, AMD is an honest company that produces something that someone saw value in and invested in to keep them alive and make them more competitive. AMD has better fundamentals than they did a year and even two ago. AIG had to bailed out and is only a service provider.
But for some people basing on technical analysis to trade, technical analysis --> trading activities --> technical analysis --> trading activities ...
AMD is in a much better shape now than in a year ago, and its stock is trying to be back to a year ago, at least.
Its recently announced VISION Technology for simplying decision making of buying PCs and selling better combined performance and value of CPU+GPU instead of just CPU which is Intel's strength is a good strategy, but the execution is even more important!
On Sep 12 04:56 PM Libra wrote:
> AMD isn't an overbought but is just trying to get out of oversold.
AMD is overbought short term and financially sound. Hey, it is only 5-bucks, and in the long run it is a diamond in the rough.
If the data isn't helpful to you, then don't use it. He's presenting data, not making some lame prediction like 'this is the top'.
All stocks tend to undergo reversion of the mean -- even if they do continue to go up for years, there are always short term corrections where a stock will drop to its 50 or 20 day MA -- where most traders are comfortable rebuying and creating true support.
A lot of financials on this list. The squeeze will remain in effect until the $USD rallies. Today the $USD looked like it might revert but finished down once again... so no dice.
Keep this list next to you when the $USD finally makes a swing higher. I bet this whole list gets slammed, far outpacing the drop in the rest of the SPY. But follow your plan. Saying the market will correct "with a vengeance by mid October" is just plain stupid.
And not surprisingly, that kind of opinion probably means the writer hasn't made much money on the best rally in years.
To: Kerry Grace Benn, Dow Jones Newswires
From: Bill Hoffman
Memo:
I read with interest about Genworth to Offer $500m ..., 9/14/2009!
Likewise, I attended on 9/14/2009- the Genworth LTC Symposium at the US Senate Bldg~
It appears that Genworth has been in-fact manipulating their financials with off the Balance Sheet entries of over $1.8 billion! As well Genworth is lobbying hard against the C.L.A.S.S. Health LTC Act, now being proposed before the Senate and Congress, soon up for a vote! All of which is documented per the enclosed!
I personally gave Senator Ted Kennedy's Aide for the C.L.A.S.S. LTC Public Care Bill, at the 9/14/2009, Dr. Connie Garner! Which she appreciated my enclosed info.
If the C.L.A.S.S. Act is passed, Genworth LTC REVENUES WILL PLUMMET!~ Since Genworth has moved the "Goal Posts" and changed with their LTC insureds, that now only when the Genworth LTC Insureds first pay their own LTC, then maybe if GNW feels allowed then GNW will pay! Now filed vs. GNW and GE and their Auditots KPMG are SEC complaints and request for KPMG CPA Oversight Board to now open complaints against GNW and KBMG!
This story may prove interesting to you, since I've attached GNW and their Parent GE who spun off GNW, to corroborate this information!
Please let me know your opinions now on GNW, with this additional info!
For a full report and related documentations, please email:
upsidebill@gmail.com
Thank you!
Bill Hoffman
Just take a gander at the markets and how high they are above their 50 day SMA beyond crossing the 200 day SMA; it's like looking at your fat Uncle on the top of a ladder trying to hang up the Christmas lights. Timothy Geithner is trying to hold the ladder; and Obama is supervising and saying "more lights, more lights".
This is a cotton candy market, fluffed up sugar sold at a premium.
On Sep 12 09:36 AM tripleblack wrote:
> Toss out AIG, its a statistical anomaly just playing its role as
> a government zombie-corporation. EK is one of those strange near-corporate-death
> examples that occurs at this point in a recessionary cycle.
>
> The rest of the list are more interesting. The two 2 I would just
> ignore.
On Sep 15 09:19 AM ebworthen wrote:
> Art Kashin said it this morning on CNBC when asked about the past
> year and where things are right now: "I've been doing this for almost
> 50 years; stocks are overvalued and overbought."
>
> Just take a gander at the markets and how high they are above their
> 50 day SMA beyond crossing the 200 day SMA; it's like looking at
> your fat Uncle on the top of a ladder trying to hang up the Christmas
> lights. Timothy Geithner is trying to hold the ladder; and Obama
> is supervising and saying "more lights, more lights".
>
> This is a cotton candy market, fluffed up sugar sold at a premium.
The real estate boom was driven by the creation of complicated financial instruments that were supposed to reduce the risk of lending money for banks. These financial instruments we're going to call "stuff" because the how and why of their creation is too complicated for this article. Because this "stuff" was supposed to reduce the risk of lending money, banks started lending money like crazy. Without much surprise this led to an increased demand for housing and the creation of a lot of this "stuff".
Basically, underlying all this "stuff" is mortgages. Mortgages are pretty simple financial instruments, a bank lends someone money to buy a house and in return gets a stream of payments to repay the loan plus interest. Usually banks are happy to lend mortgages because underlying mortgages are houses, so if you stop paying your mortgage the bank can sell your house and get their money back. Unfortunately, when the housing market slowed down the banks suddenly couldn't sell the houses to get their money back.
Eventually, banks realized this "stuff" was no longer worth the original amount of the mortgage and started the write-down process at the end of 2007. A write-down means they had to change the value of the loans on their books to reflect the current value. If they had a $300,000 loan on a house worth only $280,000 they wrote the loan value on their books down from $300,000 to $280,000. This could have been the end of the financial crisis except for two things; mark-to-market accounting and greed.
Mark-to-market accounting means you have to find a price you can sell something at in order to value it. If you thought your house was worth $300,000 but when you put it up for sale the best offer you got was $250,000, then your house, marked-to-market, is worth $250,000 no matter what you think its worth. Now consider what happens if you don't get any offers...yep, your house, marked-to-market, is worth zero. All this "stuff" banks held suddenly was worth nothing when marked-to-market. Now they couldn't raise cash by selling it or taking loans against it to meet their operating needs (payroll, rent, etc). This leaves banks without cash for operations and balance sheets worth much less after being marked-to-market.
If banks just accepted facts and took whatever was offered for their "stuff" they would have lost money, but probably would have survived. Instead they refused to accept the prices offered to them because underlying this "stuff" is mortgages and most are still receiving payments. Let's go back to the house example, maybe by now you've realized your house isn't worth $300,000 but think it's worth $260,000 and wish you had taken the $250,000 a year ago. Plus, now you're renting the house for $2,000 a month but the best offer you get is only $60,000. What would you do with an offer four times less then you think the house is worth when the house is generating $24,000 a year in rent? This is the decision faced by financial institutions. They collectively owned so much of this "stuff" that no one was willing to pay anywhere near what they wanted (not to mention there aren't that many buyers with $2 or $3 trillion to pay their prices).
They could have made the tough decision and sold as much of this "stuff" as they could at .20 cents on the dollar ($60,000/$300,000=.20), but who would do that. Instead they thought they could hold out until they got better prices, but there was no one left to offer them better prices because everyone was in the same situation. Now they can't pay the bills with just the mortgage payments coming in and they can't sell this "stuff", even at 20 cents on the dollar, because everyone who can buy it knows they have to sell it or go bankrupt. Banks are left without any choices accept to go bankrupt or take whatever price someone is willing to offer.
The good news about this situation is all this "stuff" still has value. Remember, underlying all this "stuff" is mortgages and underlying all the mortgages are houses. Whatever these houses are worth is what all this "stuff" is worth. Unless the houses are worth 20 cents on the dollar from a year ago or a $300,000 house is now worth $60,000 whoever buys this "stuff" is going to make money. However, the only way to make the money is to hold the "stuff" until all the mortgage payments are made or the market returns to normal and you can sell it. You have to have enough cash that you can just hold the "stuff" without having to sell it. That's where Lehman and AIG and all the others got into trouble...they had to sell it to meet cash flow needs but didn't so now they are forced to sell in bankruptcy.
Much like if you didn't pay your mortgage for a few months, but the house was worth more then the mortgage...the bank would still come in and sell your house out from under you for whatever they could get for it. And this selling would lower the prices of all the other houses in the neighborhood. Just like the selling by these financial institutions is lowering the prices of all the other stocks. The only thing left is deciding what you're going to do with your money now.
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Money without intelligence is like a car without a road.
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Currently, the gov’t’s common shares have earned the tax payers a 60% annualized return on their investment in common Citi equity and a 31.44% annualized return on their entire investment in Citi. Assuming the position is unwound intelligently it will be the best investment the average tax payer has made in their entire lives.
We can expect similar results to shake out over the coming years, in all of the financial institutions the government propped up. Maybe the Fed and Treasury knew what they were doing after all.
The major "troubled" banks are still cheap and we will think so in the future when the likes of Citigroup are trading a $70 and $80 a share.