Stocks are wavering and starting to act as if they are set to trade in a range through the rest of the year. Much of this is due to the fast and aggressive rally after the election results providing short-term traders with potential to lock in profits. In many cases though, this is a case of stocks reaching far into technically overbought territory.
With this in mind, today’s three big stock charts look at three of the most overbought stocks in the S&P 500, including Monsanto Company (NYSE:MON), JPMorgan Chase & Co. (NYSE:JPM) and Travelers Companies Inc (NYSE:TRV).
Monsanto Company (MON)
Basic materials have been hot as the infrastructure and Rebuilding of America trade continues to attract investable cash. MON has rallied more than 8% over the last month as investors have crowded into the shares from a short-term perspective.
Unlike many of the companies on the overbought list, Monsanto shares are trading above key resistance levels, indicating that a pullback from the current mark would likely put MON stock into a “buy the dip” situation that would benefit intermediate-term investors.
From a longer-term perspective, Monsanto shares have been attracting support from the shares’ 20-month moving average. MON stock has maintained a long-term bullish trend that should continue to attract investors, especially as economic growth continues to show signs of recovery.
JPMorgan Chase & Co. (JPM)
Financial stocks have gotten a boost from several catalysts. First, the expectation of higher interest rates has buoyed these stocks as it improves their balance sheet operations. Second, some quieting of the international concerns over failures in the Euro Zone. And third, improvements in our domestic economy.
The financials are often looked at as one of the leaders of the market as they often pave the way as an indicator of strength or weakness. Shares of JPM have rallied hard over the last month as it is becoming more clear that the regulatory environment is likely to relax towards banks.
The rally in JP Morgan has shot shares into extreme overbought conditions. Accordingly, JPM is likely to see some profit taking as soon as prices settle back into a “normal distribution”.
That said, a move back to the $78-level would get traders’ attention and provide an opportunity to grab this JP Morgan ahead of the next move in financial stocks. We would expect the powerful momentum and short profit-taking rally to combine with a short-term oversold reading to act as a bullish catalyst for the next curve-busting rally in JPM shares.
Travelers Companies Inc (TRV)
In addition to the financials, insurance companies have benefited from the same fundamental catalysts. Travelers Companies has been one of the leaders in this group rallying more than 12% from its November bottom.
Unlike MON and JPM, TRV shares are facing some overhead technical resistance that may form a make-or-break moment for the stock. Currently trading at $116, Travelers Companies is at significant chart resistance at the same price. In addition, TRV stock still has a ways to go before hitting an “all-clear” price of $120.
On the positive side, Travlers Companies shares’ 50-day moving average is transitioning into a bullish pattern as it starts to move higher. Also, Travelers Companies stock is trading above its 20-month moving average, currently at $110. This mark should provide considerable support for TRV stock when the overbought conditions do trigger selling.
Intermediate-term support should start to kick in on Travelers’ shares at the $112 price transitioning from the 50-day moving average and grow stronger as they approach $110, making TRV a stock that investors should be eyeing and selling on pressure in the near-term.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.