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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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  • 15 Most Overbought Nasdaq 100 Stocks 0 comments
    Aug 26, 2013 11:59 AM | about stocks: QQQ, FB, ADP, QCOM, ROST

    A mixed close last week with the S&P 500, Nasdaq 100, and Russell 2000 higher while the Dow closed lower despite the sharp gains in Microsoft Inc. (MSFT). The action in both Asia and Europe, Monday, seems to be following the same script with Hong Kong's Hang Seng higher but Japan's Nikkei a bit lower. Stocks in the Eurozone are also mixed and the futures are flat.

    There is a full slate of economic data this week both in the US and also overseas. Both the US and India release their latest GDP data along with key economic data out of China and Japan.

    In last Friday's Week Ahead column, I outlined two scenarios for the stock market, which focused on the action early this week that may give us some good clues on how stocks may start out the month of September.

    The PowerShares QQQ Trust (QQQ) has been leading the Spyder Trust (SPY) since the late June lows as it is up 10.8% versus a 7% gain in the SPY. The daily and weekly relative performance analysis indicates that the QQQ is now a market-leading sector.

    chart
    Click to Enlarge

    Because of this outperformance, I wanted to focus on the Nasdaq 100 for the weekly starc band scan, which gives a reading of whether a stock is a high- or low-risk buy at current levels. If a stock closes above its upper starc band (starc+), it implies a higher risk since the stock is more likely to at least move sideways, if not pull back over the near term.

    For more on trading with starc bands, click here.

    Of course, it can also be one way to identify those stocks that are emerging new market leaders. In this week's table, Facebook Inc. (FB) leads the list as it closed 0.5% above its weekly starc+ band. This is in contrast to the PowerShares QQQ Trust (QQQ), which is still 4% below its starc+ band.

    From the top 15 stocks on the table, I have chosen four stocks, one of which looks attractive for new purchase near current levels while another is an earlier recommendation.

    chart
    Click to Enlarge

    Chart Analysis: Facebook Inc. (FB) traded in a very tight range from June till the end of July when it soared in reaction to much better than expected earnings.

    • FB closed on July 26 well above its weekly starc+ band and this continued for the following two weeks.
    • Last week's close was also at the starc+ band.
    • The width of the weekly trading range, lines a and b, has upside targets in the $44-$48 area.
    • The relative performance confirmed the breakout in prices as it surged through the resistance at line c.
    • This confirmed the bottom formation, signaling that it was now a market leader.
    • The weekly OBV broke its downtrend, line d, well before the end of June and soon after surpassed its May high.
    • There is initial support now at $34.57 to $37.14.

    Ross Stores, Inc. (ROST) is a $14.04 billion discount retail apparel company that hit a new 42-week high last week on strong earnings with rising sales at all of its stores. It closed last week 3.8% below its weekly starc+ band.

    • The high at $70.86 was just above the August 2012 high of $70.82.
    • The weekly relative performance has broken through its resistance at line g, indicating that it is now a market-leading stock.
    • The RS line had been rising since last March, line h.
    • The weekly OBV did form a negative divergence in 2012, line i, and this downtrend was overcome in July.
    • The OBV turned up from its rising WMA last week, which is a bullish sign.
    • The daily OBV (not shown) has surged sharply higher so the multiple time frame OBV analysis looks very positive.
    • There is minor support now at $88.46, which is the monthly pivot for September.
    • Additional support at $67.75 (line e) and $67.98, which is the mid-point of last week's range.
    • More important support at $64.67


    Click to Enlarge

    Qualcomm (QCOM) shows a broad trading range with resistance, line a, at $68.83 that goes back to the 2012 highs.

    • The stock closed above its 20-week EMA five weeks ago and has been edging higher ever since.
    • Next month's projected pivot support is at $65.15 with the 20-week EMA at $64.30.
    • There is stronger support at $62.92 with the June low at $59.02, which is a key level.
    • The relative performance has moved back above its declining WMA but is still well below its long-term downtrend, line c.
    • The weekly OBV does look better as it tested long-term support at line d, in June.
    • The OBV has now moved back above its WMA

    Automatic Data Processing (ADP) has been moving sideways for the past four weeks with initial resistance at $73-$73.83 and the starc+ band at $76.37.

    • There is minor support at $71.10 and then further at $70.11.
    • The 20-week EMA is at $69.61 with longer-term support, line e, at $65.30.
    • The relative performance turned higher from support, line f, in early August.
    • The RS line is now well above its WMA but still below its previous highs.
    • The weekly OBV is holding above its WMA with further support at line g.
    • There is monthly support now at $66.60

    What It Means: The most overbought stock, Facebook Inc. (FB) looks very positive over the intermediate term but needs a significant pullback to create a reasonable risk entry.

    Ross Stores, Inc. (ROST) enters a strong seasonal period in September and looks attractive on a pullback into last week's range.

    Qualcomm (QCOM) has a very strong fundamental case as a leading maker of chips for mobile devices. Technically, it looks as though it will pull back towards its recent lows, which could present a good buying opportunity.

    Automatic Data Processing (ADP) is part of the Charts in Play portfolio. Support is now at the four-week lows, which if broken, will signal a shaper correction.

    How to Profit: For Ross Stores, Inc. (ROST), go 50% long at $68.08 and 50% at $67.43, with a stop at $64.23. (risk of approx. 5.2%).

    Portfolio Update: Should be 50% long Automatic Data Processing (ADP) at $55.54, with a stop at $68.82.

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

    Stocks: QQQ, FB, ADP, QCOM, ROST
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