Which stocks are most over (and under) extended from their 200 day SMA?
How can we use this scan to find short-term trading opportunities from the stocks that appear on the list?
Let’s start our scan and see the charts.
Here’s the top five most over-extended stocks in the S&P 500 right now:
Based on the scan, Windstream Holdings (WIN) is the most “overextended” stock from its rising 200 day SMA, followed by Alcoa (AA).
When conducting a simple scan like this, keep in mind that low priced stocks can more easily return a higher “extended” value than higher priced stocks.
Nevertheless, Under Armour (UA) is a “strong getting stronger” stock along with the Williams Companies (WMB) which are priced in the $ 50 and $ 60 per share level. I would suggest focusing more attention on these stocks.
In fact, we can take a quick glance at these four stocks:
Stocks in uptrends tend to get stronger, and thus trading opportunities develop from buying retracements (including ‘bull flags’) and breakouts in a trending environment.
Very aggressive traders can try to short (or fade) over-extensions in these strong trending stocks, similar to the ‘pullback’ pattern we’re seeing in Alcoa (AA) at the moment.
Let your risk tolerance and trading experience determine which strategy you use (new traders should favor pro-trend strategies).
Finally, here are the top five most under-extended stocks from their 200 day SMA:
We can view the top four stocks on a quick scan below:
Whole Foods (WFM) and Coach (COH) are “weak stocks getting weaker” while Genworth Financial (GNW) was a trending stock that stalled, experienced distribution, and collapsed (reversed) down on a trigger-break under $ 16.00 per share.
Sometimes simple stock scans can highlight candidates we may not otherwise have seen.
Corey Rosenbloom, CMT
Afraid to Trade.com
Follow Corey on Twitter: http://twitter.com/afraidtotrade