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Nasdaq 100's Most Overbought Stocks

|Includes:AKAM, ALXN, PowerShares QQQ Trust ETF (QQQ), STX, XLK

Close proximity to technically overbought levels means that these fast-gaining Nasdaq 100 stocks carry high risk at current levels, and shareholders should now lock in hard-earned profits.

As Apple Inc. (AAPL) surges above the $500 level and Wall Street analysts bump their price targets for the S&P to 1400 or 1450, it continues to indicate a market where risk is increasing.

This is opposite of last fall, when the major firms were lowering their forecasts for both the S&P 500 and US GDP at a rapid rate. This was pointed out in the September 23 Week Ahead column, "Is the Majority Wrong?"

Though I can eventually see the S&P 500 reaching 1400 or 1450 sometime in 2012, I don't expect it in the near future. In looking for stocks to buy, there are currently so many that seem to be quite overextended, and I am not finding many opportunities at present levels.

The Nasdaq 100 has been leading the market higher, as the PowerShares QQQ Trust (QQQ) is up 12.9% so far in 2012. Even though QQQ is still 8%-9% below its next major Fibonacci price target, it is important to take note of the overbought status of the individual stocks that make up the Nasdaq 100.

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The table above lists Nasdaq 100 stocks that are closest to their weekly Starc+ bands. As I have noted in the past, when a stock is close to its weekly Starc+ band, it is a high-risk time to buy (see "Buy, Sell, or Wait: A Way to Decide").

The most overbought stock is Seagate Technology (STX), which is currently 2% above its weekly Starc+ band. In fact, the five most overbought stocks on the list are either at or above their weekly Starc+ bands.

Other stocks listed are also very close to their weekly Starc+ bands. For example, Akamai Technologies Inc. (AKAM) is listed at -2%, which means it is just 2% below its weekly Starc+ band.

We can also see the percentage by which each stock is above or below its 200-day moving average (NYSE:MA). Seagate Technology (NASDAQ:STX), which was featured last week in "3 Stocks You Shouldn't Buy Now," is 69% above its 200-day MA, which currently sits at $15.50. This is consistent with a very overextended condition, and I continue to suggest selling, not buying, when a stock is this overextended.

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Chart Analysis: The PowerShares QQQ Trust (NASDAQ:QQQ) shows a rather steep uptrend since the start of the year, but it is still well below its weekly Starc+ band at $64.86. The daily Starc+ band is closer at $63.88.

  • The relative performance, or RS analysis, looks strong, as it broke its downtrend (line b) and moved above its weighted moving average (WMA) early in 2012
  • The daily on-balance volume (OBV) continues to confirm each new price high. It is well above its rising weighted moving average and shows no signs yet of a top
  • Minor support now stands at last Friday's low of $62.25 with stronger support at $60-$60.80

Akamai Technologies Inc. (NASDAQ:AKAM) was very strong last week, closing just 2% below its weekly Starc+ band. The major 61.8% Fibonacci retracement resistance from the 2010 high is at $40.70.

  • The weekly RS analysis shows a nice bottoming formation and is in a solid uptrend, line d
  • The weekly OBV overcame its downtrend, line e, in early February and is well above its rising weighted moving average
  • There is now first good support at $35.50-$36.50 and then at $34
  • More important weekly chart support, line c, is in the $30.50 area

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Alexion Pharamceuticals Inc. (ALXN) is also trading very close to its weekly Starc+ band and is up 12.5% from the early-February lows at $75.04 (line a). The stock is 39% above the strongly rising 200-day MA, which sits at $59.99.

  • The RS line just made new highs last week, and from an intermediate-term standpoint, it looks very strong
  • The RS line moved through resistance (line b) early in 2012, signaling that ALXN was starting to outperform the S&P 500
  • Weekly OBV also made new highs last week, overcoming key resistance, line d, in December
  • There is initial support now at $79-$80 with much stronger support in the $74-$76 area

What It Means: Though the Starc bands and moving average analysis clearly identifies that these 15 Nasdaq 100 stocks are overbought, they still could gain another 2%-5% before they start to correct.

The longer it takes for the market to correct, the more violent the correction may be, and as a result, I would recommend taking some partial profits in the two tech-heavy ETFs that I have previously recommended, QQQ and the Select Sector SPDR - Technology (XLK).

How to Profit: For Akamai Technologies Inc. (AKAM), go 50% long at $32.78 and 50% long at $30.66 with a stop at $28.86 (risk of approx 9.8%).

For Alexion Pharamceuticals Inc. (NASDAQ:ALXN), go 50% long at $75.88 and 50% long at $74.16 with a stop at $69.56 (risk of approx 7.2%).

Previous buyers should be long the PowerShares QQQ Trust (QQQ) from $56.34. Sell half the position now and raise the stop on the remaining position to $58.12.

For the Select Sector SPDR - Technology (NYSEARCA:XLK), buyers were 50% long at $23.66, 50% long at $23.12, and sold half the position last week at $28.06. Use a stop on the remaining position at $26.26.

I will be giving a free workshop at the New York Traders Expo on RS analysis. Those interested in attending can sign up here.

Stocks: QQQ, XLK, AKAM, STX, ALXN