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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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  • 13 Most Overbought S&P 500 Stocks 0 comments
    Nov 25, 2013 11:48 AM | about stocks: SPY, BA, MCK, HAR, PXD

    The sharp gains last week and new closing highs in the major averages has turned the focus once again on the Advance/Decline lines, as they have not yet confirmed the new highs in a convincing manner.

    The daily OBV analysis does look stronger on all, except the small cap iShares Russell 2000 (IWM) which is still diverging sharply from prices. The weekly analysis does look much stronger and the futures are higher again in early trading on Monday.

    Since there are only four days left in the month, I chose to run the monthly starc+ band scan of all stocks in the S&P 500 to see how many were trading above their starc+ bands. There were thirteen stocks that closed last week above their monthly starc+ bands.

    Click to Enlarge

    These scans can often warn investors not to buy at current levels or to even take some profits. In my December 2012 review Home Depot (HD) was the top stock on the list, as it had traded near its monthly starc+ band for the prior three months. As it turned out, HD peaked at $65.92 the day the article was released and then dropped 8.6% in the following three weeks.

    McKesson Corporation (MCK) tops the list, as it closed Friday 12.9% above its monthly starc band. I have also included what % these stocks are trading above their 50-day moving averages, as over 73% of the S&P 500 stocks are currently above their 50-day MAs. For example, MCK is 13.5% above its 50-day MA.

    In comparison, the Spyder Trust (SPY) closed last week at $180.81, which is 3.4% below its monthly starc+ band at $186.33. SPY closed 4.3% above its 50-day WMA. Let's look at the most interesting charts based on the OBV, as well as the multiple time frame RS analysis, including one that warned last month that it was a high-risk buy.

    Click to Enlarge

    Chart Analysis: McKesson Corp (MCK) is a $37.6 billion dollar wholesale drug company that started moving above its monthly starc+ band in January 2013.

    • Since then, it has repeatedly tested its starc+ band and looks ready to close above it for the second month in a row.
    • The weekly analysis shows that MCK has been bumping into the starc+ band for the past nine weeks.
    • The monthly relative performance has been in a solid uptrend since the middle of 2009, as it has been a market leader, up 76% over the past year.
    • The monthly OBV moved above its WMA at the end of 2012, but is still below the May 2007 high, line c.
    • The weekly RS and OBV analysis show no signs yet of a top.
    • There is initial weekly support at $154-$156 and the projected monthly support for December is at $152.

    Boeing Co. (BA) has been a highly-touted stock over the past several months, as it has gained almost 30%.

    • In October it closed $11 above its monthly starc+ band and looks ready to repeat this in November.
    • BA hit a high last week of $142, but closed the week at $135.97, which was 4.2% below the highs. The weekly low was $131.20.
    • The relative performance broke its downtrend from the 2007 high, line e, in March.
    • The OBV broke out at the same time, as the resistance, at line g, was overcome.
    • The high from 2007, line f, was overcome in October.
    • The weekly technical studies have turned down, but did confirm the highs.
    • There is first support now in the $130-$131.20 area.
    • For December, the monthly projected resistance is at $147.60.

    Click to Enlarge

    Harmon International Industries (HAR) is a well-known maker of audio equipment that has a YTD gain of 84%. It closed last month above its starc+ band, but has traded in a narrow range in November.

    • The long-term downtrend from the 2004 and 2007 highs is at $106.
    • The chart shows a doji could be formed this month, with a low of $76.39.
    • The relative performance has just barely moved through its resistance, line b, but does appear to have bottomed.
    • The RS line is well above its now rising WMA.
    • The OBV is acting much stronger than prices, as it is well above the resistance, at line c.
    • The weekly studies are positive and did confirm the most recent highs.
    • The monthly pivot is at $76.80 with further support at $73.30-$74.50.

    Pioneer Natural Resources (PXD) is a $25.9 billion independent oil and gas company that is up over 75% so far in 2013. It is no longer above its monthly starc+ for November, but traded well above it during the month.

    • The monthly chart shows a spike high of $227.42 with a close last week at $186.68.
    • It is almost down 18% from the highs and looks ready to close the month lower.
    • The relative performance moved through its resistance, line e, early in the year.
    • The RS line has now turned lower but is well above its WMA.
    • The on-balance volume (OBV) pulled back to test its WMA in 2012, before turning higher.
    • The OBV is challenging the resistance, at line f, but did confirm the highs.
    • Both the weekly RS and OBV lines (not shown) are now below their WMA, suggesting the correction could go further.
    • The 20-week EMA at $183.45 is trying to support prices, with the quarterly pivot at $179.39.

    What it Means: I included Pioneer Natural Resources (PXD) since it was a stock that closed the month of October above its monthly starc+ band, but well below the month's highs. It certainly has been a disappointment this month.

    Those stocks that have consecutive closes above the monthly starc+ bands have become increasingly vulnerable. All of the stocks in this table could easily see a 5-10% drop in the next few months, so it would be a good time to take partial profits. Also, when determining your stop, you should ask yourself if you would be able to stick with them after a 15% drop. Your answer may help you place your stop.

    How to Profit: No new recommendation for now.

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

    Stocks: SPY, BA, MCK, HAR, PXD
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