Stocks continue to feel toppy while the S&P 500 and other major indices are gyrating near the top of their ranges. Looking at our technical filters, the list of companies that are reaching overbought extremes is starting to grow. Overbought conditions are typically temporary in their bearish nature, except when a stock is already in a negative intermediate-term trend.
Today’s three big stock charts looks at shares of Activision Blizzard, Inc. (NASDAQ:ATVI), Hasbro, Inc. (NASDAQ:HAS) and Moody’s Corporation (NYSE:MCO), as all three stocks are reaching overbought readings while trading below key trendline resistance — a bearish combination.
Activision Blizzard, Inc. (ATVI)
The video game maker saw some strength through October last year, but failed to get the normal seasonality trend that we see in it and other toy and video game companies as the holidays approach. Instead, ATVI spent the last quarter falling into a technically bearish trend.
Activision shares are right at overbought readings according to their RSI, which is bad news as ATVI stock is trading just below its 50-day moving average. The combination of technical trendline resistance and an overbought reading is dangerous.
Traders are likely to take the signal as a reason to sell Activision shares into the resistance, continuing the intermediate-term bearish trend that initiated on Nov. 8. For now, it appears a wise move to sell ATVI into the recent 5% rally if you already held the shares, or take the short side of the Activision trade as a price target of $36 or lower is likely.
Hasbro, Inc. (HAS)
Unlike ATVI, Hasbro shares did see the seasonal strength of the holiday shopping season play out as shares of the toy company rallied for a 14% gain from their October lows to November highs. Since hitting those highs, HAS stock has seen an increase in volatility and selling, putting Hasbro shares on the brink of a intermediate-term sell signal.
HAS shares spiked this week shooting the RSI reading for the stock to near-overbought levels. What appears to be the rally’s last push on Thursday also marked a move above the 50-day trendline, which is being reversed this morning.
A reversal at the 50-day moving average will accelerate the selling pressure as traders are already reacting to the short-term overbought readings. Unfortunately, there are more warnings signs.
Hasbro’s 50-day moving average is in the process of transitioning into a bearish pattern as the trend is rolling over into a declining pattern. Our models indicate that this will increase the downside risk for HAS stock over the next four to six weeks and target a move back below $76 and potentially as low as $72.
Moody’s Corporation (MCO)
With interest rates heading higher there is a chance that there will be fewer bond issuances in 2017. Of course, this is a potential fundamental weakness for Moody’s, but the charts are already revealing some risks to the rating agency.
Since October, MCO shares have been trading in a new bearish trend. Moody’s stock hit highs in September and then reversed as it became clear that the Federal Reserve was heading towards an interest rate hike.
Today, Moody’s shares are experiencing overhead pressure from their declining 50-day moving average. This is the first time that MCO stock has experienced this pressure since rolling over in October, so the traders will use the reaction as a litmus test for the next two to three months of trading, barring any blowout earnings results or outlooks.
In addition, Moody’s shares are seeing pressure from their longer-term, 20-month moving average, which is “trading” at $99.88. This trendline marks the difference between a technical bull and bear market for MCO stock and will not be an easy mark for the shares to move above.
Given the short- and long-term implications of the current price level, Moody’s shares should be considered a dangerous hold for investors and a potential shorting opportunity for the aggressive traders.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
