The S&P 500 has been in a prolonged battle with the 2,170s, and overall, the broader market is starting to look toppy right now.
Naturally, the index isn’t alone in its technical pattern. Right now, three stocks in particular should be watched, as their rallies could be coming to a close. Today, we’ll focus on Abbott Laboratories (NYSE:ABT), Bank of America Corp (NYSE:BAC) and Costco Wholesale Corporation (NASDAQ:COST), which could be firing warning shots across the bow of investors.
Bank of America Corp (BAC)
Bank of America, along with many of the large financials, has been lagging the market for a very long time, meaning that any rally has the potential to be sold into. The one-month 20% rally in BAC stock to current levels has to have some technical traders thinking of closing out some short-term profits.
From a technical perspective, Bank of America shares are running straight into their 200-day moving average. This is a strong trendline for resistance for the shares, as they have failed to break above it twice in the last three months.
In addition to the long-term trendline resistance, shares have just crested into a technically overbought situation as the short-term RSI is now posting readings above 70. We saw BAC shares trade down almost 10% in April after a similar reading.
Shares likely will see some support at the $14 level on their way down, but the technical target for now is likely to be in the $13 area.
Abbott Laboratories (ABT)
ABT shares have rallied more than 15% in the last month, the last 4% of that coming after its earnings report. Abbott beat on earnings and reaffirmed its FY 2016 guidance.
Shares are trading at a position where more than a few technical resistance levels are in play. First, from a long-term perspective, the 20-month moving average sits at $43.91; this was April resistance when the stock sold off a week after earnings. This long-term trendline also is considered the line of demarcation between a bull and bear market for stocks.
From a shorter-term perspective, the $44 level offers resistance from round-numbered resistance. Additionally, the top Bollinger Band from the bearish trend that started one year ago lies at $43.75. Finally, ABT shares are well into overbought territory with a reading of 74
The combination of technical resistance just above current prices draws some short-term bearish potential for this recent performer.
Costco Wholesale Corporation (COST)
Retailers have been making a comeback recently on some better economic and consumer data. This has helped Costco move to the $168 level, which challenged all-time highs posted in December.
COST shares ran into the top of their expanding Bollinger Bands last week, slowing the progress of the rally almost immediately. Following that, Costco stock went into a holding pattern that is now threatening to give way lower as the MACD is showing a reversal in the shares’ trend,
In addition to the loss of momentum, Costco shares are working their way out of a technically overbought condition that is similar, but to a larger magnitude, to what we saw in April when shares went from $157 to $142.
Traders are likely to lock in profits at current levels given the technical headwinds that COST shares face over the short-term.
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