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Tom Aspray, professional trader and analyst was originally trained as a biochemist but began using his computer expertise to analyze the financial markets in the early 1980s. Mr. Aspray has written widely on technical analysis and has given over 60 presentations around the world. Many of the... More
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  • The 15 Most Overbought S&P 500 Stocks 0 comments
    Jan 22, 2013 11:14 AM | about stocks: SPY, BSX, LIFE, STT, HD, CELG

    With the impressive gains for stocks in 2013, it is not surprising that a number of stocks are overbought says MoneyShow's Tom Aspray, but his weekly scan also identifies several stocks that look positive for the longer term.

    The series of new highs in the NYSE Advance/Decline is a positive sign for the stock market's intermediate-term outlook. However, given the extent of market's gains, it is increasingly important to concentrate on the buy level for any stock or ETF.

    In reviewing the current weekly starc+ band scan of all stocks in the S&P 500, the first ten stocks all closed last week above their starc bands. The Spyder Trust (SPY) closed last week at $148.33, which was 2.3% below its weekly starc+ band at $151.76. The monthly starc+ band for SPY is at $159.19.

    These scans can often warn investors not to buy at current levels or to even take some profits. The warnings from the monthly scans are strongest. As I noted in the December 2012, the top stock on the list, Home Depot (HD), had traded near its monthly starc+ band for the past three months.

    As it turned out HD peaked at $65.92 the day the article was released and then dropped to a low of $60.21 in late December. The monthly technical studies at the time were positive and now HD is already challenging those highs. Another benefit of the weekly and monthly scans is that they can help one look at stocks that may not already be one's radar and identify stocks to buy on a correction.

    Click to Enlarge

    Celgene Corp. (CELG) leads this week's list as it closed 5.4% above its weekly starc+ band at $94.65. A majority of the stocks on the table are well away from good support levels, and so while they can easily continue higher over the next few months, the risk on new longs at current levels is too high. Several of these stocks do look ready to continue as market leaders for 2013 and therefore should be monitored for a good entry point at a lower level.

    Click to Enlarge

    Chart Analysis: Life Technologies Corp. (LIFE) was featured in December's column "5 More Stocks for Your Stocking." It declined to a low of $48 at the end of the year and then surged over 10% last Friday when the company announced they were looking for a buyer.

    • The monthly chart shows that it is also now trading above its monthly starc+ band at $58.26.
    • The longer-term trend line resistance, line a, is now at $64.33.
    • The monthly relative performance moved through its WMA at the end of September (line 1).
    • The RS line has now also broken its downtrend, line b.
    • The OBV also completed its bottom formation last November as it moved above resistance, line c, and it's WMA.
    • The weekly studies (not shown) surged strongly last week as LIFE closed 4% above its weekly starc+ band.
    • The first real support is at $53.50 which was last week's low with the quarterly pivot at $9.58.

    State Street Corp. (STT) is one of the many financial stocks that surged last week on heavy volume. For STT, 10 million shares traded Friday, which was well above the daily average of 4 million.

    • The weekly resistance, line d, at $54.11 was hit last week.
    • The next resistance from 2009 is at $55.87 with the 2008 high at $86.55.
    • The relative performance broke its multi-year downtrend, line e, in early November.
    • The RS line pulled back in December before accelerating to the upside.
    • The on-balance volume (OBV) had formed a long-term downtrend, line f, from the 2010 highs.
    • This resistance was overcome in August as the bottom formation (line g) was completed.
    • There is initial weekly support at $50.50 with the quarterly pivot at $46.55.

    Click to Enlarge

    Boston Scientific Corp. (BSX) along with Genworth Financial Inc. (GNW) are two low-priced stocks that showed up in the scan. The monthly chart of BSX shows long-term support, line b, in the $4.67 area.

    • The low so far in January has been at $5.76 with a very tight range in December.
    • The monthly relative performance has moved above its WMA for the first time since September of 2009.
    • The monthly OBV has been above its WMA for the past two months and has just broken its long-term downtrend, line c.
    • BSX is already close to its quarterly R3 resistance at $6.99 and there is long-term resistance just above $8.
    • There is first real support now at $5.90-$6.20 with the quarterly pivot at $5.66.

    Tyson Foods (TSN) closed last week at $21.85 which was above the resistance, line d, that goes back to 2010.

    • This completed a broad trading range that has long-term projections in the $28-$29 area.
    • The weekly RS line has been above its WMA since the middle of October and broke through its downtrend, line f, in November.
    • The year-long resistance in the on-balance volume (OBV), line g, was also overcome in November and shows a very positive pattern.
    • There is initial support now in the $20-$20.50 area (line e) with more important at $18.92, which is the quarterly pivot.
    • A drop below the November low at $16.50 would be negative.

    What it Means: The main lesson from this week's scan of the S&P 500 is that now is a time to be a selective buyer and a profit taker in some stocks as I advised in my Week Ahead column.

    All of the stocks, except possibly Life Technologies Corp. (LIFE), will look attractive on a meaningful correction where the risk on new longs can be controlled. For now, my only new recommendation for more aggressive investors is Boston Scientific Corp. (BSX), which appears to be completing a long-term bottom.

    For LIFE, I advise taking close to a 20% profit on half of the position on today's opening (as tweeted) since the stock has been in the portfolio less than a month and Wall Street's proposed buyout level is not that far above current levels.

    How to Profit: For Boston Scientific Corp. (BSX), go 50% long at $6.14 and 50% long at $5.82, with a stop at $5.59 (risk of approx. 6.5%).

    Portfolio Update: For Life Technologies Corp. (LIFE), you should be 50% long at $51.04 and 50% long at $50.48. Sell ½ now and raise the stop to $52.72 on the remaining position.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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