We’ll be the first to admit that we’ve been waiting for a pullback to get into stocks as the current rally has run into overbought territory. Of course, this reminds us of one of the simpler rules: “Overbought can always become more overbought, just like oversold can always become more oversold.”
With the resilience of the market dragging many stocks higher, the best way to get into the market right now (without buying a stock that’s ready to trip over its own high prices) might be by seeking out stocks that have already experienced a “healthy correction” on their own.
We set our system of database filters to find companies in the Russell 1000 Index — which is trading about 6.5% higher than its closing value two months ago — that are currently trading a significant distance below their respective highs over that same period while still trading with 50-day moving averages that are increasing. This reveals companies that have experienced a pullback while remaining technically healthy.
Of the 1,000 companies in the Russell 1000, 40 currently meet the requirements we used of seeing a 5% or better pullback while remaining technically strong. These companies offer potential for traders looking to put money to work without buying stocks that remain at or near their recent highs.
The table below displays these 25 “stealth pullback companies” in order of the magnitude of their recent pullback:
Looking through the list, there are a few companies that standout to us as particularly interesting opportunities …
ON Semiconductor (NASDAQ:ONNN): This company is a workhorse that designs, manufactures, and markets semiconductor components for electronic systems and products worldwide. The latest earnings report showed a positive surprise as ONNN beat analyst expectations by 14%. Unlike other semiconductor companies, ONNN has been trading with a technically strong trend since December 2012. Shares recently pulled back to the 50-day moving average, providing traders with an opportunity to get the shares on sale. Expect to see these shares move back to their recent highs, 6% higher than current prices.
Fossil (NASDAQ:FOSL): This fashion accessory company has benefited from consumer strength, which has translated into stronger fundamentals for the retail sector and its companies. FOSL tested a new near-term high a few weeks ago on a good earnings report only to retrace after a few analyst downgrades. The successful test of the 50-day puts the stock in position to repeat the performance after its preceding earnings season, when the stock pulled back before shooting from $80 to $108. We like the technical looks of Fossil and its chances to hit $115 over the near-term.
Halliburton (NYSE:HAL): Oil and gas prices are in the news again as prices continue to trend higher. The higher energy prices translate into increased interest for companies like Halliburton that focus on the exploration, development and production of oil and natural gas. HAL shares recently pulled back to $40 from their relative highs of $44. The decline corrected an overbought situation for the shares, opening the door for technical traders to move back into this relative strength leader in the oil and gas equipment and services sector.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.