4 Stocks we are looking at on a S&P pull back


S&P 500


As we stated in our last post when the S&P 500 was trading around 1,800 the market had yet hit an overbought level and no definitive sell signal has been signaled.  At this juncture our members have caught the last 420 S&P 500 points and we want to protect profits.  The last Buy signal was generated at 1,683 and we started to scale back at approaching overbought at 1,770.

  • We have highlighted the below data throughout the year as the S&P 500 becomes overbought.  Many of you have seen this information before. Below are the most overbought markets in the last 19 years and how they performed 30 days later. As you can see, you will get some mean reversion, but the pull backs are shallow as the stronger the market the behavior of the bulls want to buy the dips.   As we mentioned yesterday, we would reduce more long exposure on rally’s as the overbought level is very close.  We still don’t expect a large pull back as you can reference below, the extremely strong and overbought markets have slow pullbacks.

    Dec 15, 1995 Counter Trend was -90.97
    Aug 5 1997 Counter trend was -74.19
    Jan 16 2004 was -72.28
    Feb 14 2007 counter trend was -69.03
    Jan 14 2010 counter tend was -74.52
    Feb 2 2011 counter trend was -72.53
    May 22 2012 counter trend was -74.08
    Current counter trend -70.50 

    Here is how the S&P 500 performed 30 days following these readings. 

    Dec 15, 1995 -3.13%
    Aug 5 1997 -2.20%
    Jan 16 2004 +1.00
    Feb 14 2007 counter trend was -3.15%
    Jan 14 2010 counter tend was -5.63%
    Feb 2 2011 counter trend was  -2.63%
    May 22 counter trend was -74.08 +1.4%

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4 Names we are watching closely. 

Reminder, most of these names are either overbought or extremely overbought.  So wait for a pull back.

MA – MasterCard is overbought.  Seems like an easy call now, but we first went to a Strong Buy Sept 2012 at $453.70 (see below).  With a broad S&P 500 5% to 7% pullback we will be looking to allocate capital to MA as long as the Rating Value holds above the S&P 500.  Of course all bets are off if MA has a negative earnings catalyst or is downgraded in our proprietary rating.


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A Look at the Strongest & Weakest In Healthcare, Industrials and Materials

For those who are new to ChartLabPro.com ratings. We have a 1 to 5 buy sell rating, 1 (Strong Sell) 5 (Strong Buy).  You can see the rating key below on the top right.  We also break down the ratings on a granular level. You will notice the sector bars below are being displayed on a granular level.  .60 to a 1.00 is a Strong Buy with a 1.00 being the strongest of the 5’s.  Below you will find the 5 strongest and weakest stocks in the Industrial, Material and Healthcare Sectors.


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Stocks we are looking at on a broad market pullback

As the S&P 500 becomes approaching overbought based on our proprietary counter trend indicator we will now wait for an overbought level.  10 out of the 13 last approaching overbought levels have proceeded to our overbought level.  Of course there is no guarantee the S&P 500 will become overbought.

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If we reach our proprietary overbought level, we will look for a slight reversion to the shorter term mean in this longer term bull run.  We believe 2014 will be a stock pickers market as the Fed reduces liquidity.  This will cause more divergence between stocks within their respected groups.  So, we want to look for the Strongest Stocks within the S&P 500.  Below are currently the Strongest 20 Stocks within the S&P 500 based on our proprietary rating system.

20 strongest

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It’s time to reduce Equity exposure.


UPDATE: Same theme for the last five weeks- Move up the trailing protective profit sell stop as bullish price action continues to dictate the overall profile of the Index.

Last week, we also stated, “Keep in mind the bullish cycle of this move could wane toward 1825.00. The upside is limited at this juncture”.  Since moving to the Strong Buy at 1,683 on the S&P 500, we said a move to 1,825 was likely.  We would reduce exposure at either 1,825 or an overbought level.  These are not bearish sells, just proactive risk management.  Remember, we are not trying to call market tops or bottoms, we are just trying to proactively manage risk.  For those of you who have been with us for the entire 2013, we have caught almost 400 S&P 500 points and we are going to defend this gain even if we have not hit the official overbought level.

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Financials Gaining Steam

UPDATEPrior to last week’s trading, we stated, “A near term daily settlement above 127’00 should be enough of an impetus to cover short positions – but only on a close above 127’00”. Turns out, the settlement the very next trading day, last Monday, was 127’015. Therefore, based on our advice you would have covered shorts. As of last Thursdays dip, it certainly indicated you would have been whipsawed, based on our upside pivot. At this time, the market may continue to consolidate within the triangle (two red lines). However, a close below 126’10, sell outright.

But the large trade is margin expansion for deposit institutions, we have been bullish based on our proprietary indicator in MS and BAC for the last year.  As you can see from the heat map our ratings are strongest with the Insurance companies and investment firms.      


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Get ahead of the Smart Money

Quarterly Filings are hitting the Street.  George Soros’s family office picked up 1,515,730 and 375,000 shares in call options in FedEx.    Daniel Loeb revealed that he had snapped up a new position in FedEx as well, his fund ThirdPiont owns 2 million shares.

ChartLabPro.com sent to a Strong Buy in July at $103 and now is approaching overbought.  Be careful if you are chasing this one as it is now up 30% in a short period. 


Don’t follow hedge fund quarterly filings if you want to make money

Quarterly Filings are hitting the Street and David Tepper reported t a position in J.C. Penny.  JCP is trading up 5% today as the herd mentality rushes into this name.  Question, do you think the Smart Money (David Tepper) is going to stay long after a 40% return in less than 4 weeks?  Don’t follow the herd and get slaughtered with the pack.  Since he bought the stock the stock is up over 30% and since the 13 F, he was publically stated as saying he sold the stock.  This is what you call stale information.