S&P 500 futures are pointing to another weaker open Monday as the market might finally be realizing that September seasonality isn’t just a myth. The S&P 500 made a considerable break below its 50-day moving average last week. That’s sending warning signals to traders that they should lock in profits — fast.
Today’s three big stock charts highlight overbought companies that have been leading the market higher. Traders now have an opportunity to close positions, or even short these companies to generate profits in a market that’s likely to see a 5% to 10% drop. Among the list of stocks that are susceptible to selling are Sprint Corp. (NYSE:S), Alibaba Group Holding Ltd (NYSE:BABA) and Symantec Corporation (NASDAQ:SYMC).
Alibaba Group Holding Ltd (BABA)
![Alibaba Group Holding Ltd (BABA)](https://investorplace.com/wp-content/plugins/lazy-load/images/1x1.trans.gif)
Ever since Alibaba reported earnings on Aug. 10, BABA shares have mustered a nearly 20% rally on increased value. That bandwagon activity now has shares of the online retailer flagging a bit. Volume is dropping, the market is turning and the stock is reversing its overbought signal.
Friday’s trading took Alibaba shares out of their technically overbought conditions, but the stock has to finish regressing to its mean before it becomes a buy. The market’s weakness is likely to aid in this short-term correction as the crowd will move swiftly out of overbought stocks.
A similar overbought reading earlier this year saw BABA stock drop more than 10%. Currently, shares have support at $88 — from the 50-day moving average — that should hold strong. This trendline has been supportive of the shares all year and has served as the launch pad for a number of short-term rallies. Watch for buying interest around $92 before jumping back in for another rally back to $104.
Symantec Corporation (SYMC)
![Symantec Corporation (SYMC)](https://investorplace.com/wp-content/plugins/lazy-load/images/1x1.trans.gif)
SYMC hasn’t looked back since its earnings report, either. Symantec shares were trading at $21 ahead of their last earnings report; they currently sit at $25. The problem? Shares have spent much of the past three weeks in overbought territory. Thus, SYMC needs just one trigger to start a regression to the mean.
The selloff looks like it’s about to do the trick.
From a technical perspective, Symantic shares should see some buying interest at the $24 level, but this will likely be short-lived as momentum indicators suggest SYMC could unwind all the way down to $22.50.
At $22.50, Symantec shares would not hit an oversold condition, which would give a clear buy signal. That also would be close enough that traders could initiate positions on a bounce from the strong 50-day trendline.
Sprint Corp (S)
![Sprint Corp (S)](https://investorplace.com/wp-content/plugins/lazy-load/images/1x1.trans.gif)
Sprint stock has sprinted higher (apologies) on a rise in trading volume. S shares hit a crescendo last week as Sprint’s stock price hit the $7 market on unusually heavy volume. Now, the lack of buying volume a day later has traders wondering if it’s time to lock-in gains.
From a chart perspective, the $7 level served as both support and resistance for Sprint in 2013 and 2014, meaning that the round-numbered level is likely to do the same this time around. More worrisome is the fact that Sprint’s stock hit an overbought condition on Sept. 7 and was able to maintain its rally.
That overbought reading is now playing a little harder against the shares as the market’s direction appears to be taking a turn. Given Sprint’s fastbreak, our technical models target a retracement back to the $6 level.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.