5 Stocks to Watch in Overbought Territory

5 Stocks to Watch in Overbought Territory

By Cory Mitchell, CMT

The following 5 stocks to watch have been ripping higher in the last month. All are in very overbought territory, but that does not necessarily mean they will collapse. Day traders and swing traders may want to keep an eye on these 5 stocks…for further upside or a big reversal.

5 Stocks to Watch

Regeneron Pharmaceuticals (Nasdaq: REGN) has gone from $56.43 to a high of $79.97 since the start of the year. The $80 mark is not without history though. Back in May 2011 the stock saw a surge higher and was stifled by $71.74. In September 2011 the stock sprinted higher, first knocked-back at $75 and then $80. Therefore, the $80 is crucial, and any price above $70 is in overbought territory historically. Right now the RSI is overbought and the slow stochastic very overbought. This is not a direct indication to sell/short, but rather to keep an eye on this one, especially around $80. Failure to break above could mean a sharp pullback. While a break above opens the doors to further upside.

 

Achillion Pharmeceuticals (Nasdaq: ACHN) is also ripping higher in early 2012. To see the last time this stock was above $10 we need to go back to 2007, where it hit an all time high of $20. Currently there is no real resistance until that point. Yet, the indicators are in overbought territory. There are a few prices to watch in this one. The recent high at $12.51. Today’s intra-day low at $10.85, and then the low of the January 9 at $8.56 (the day the stock gapped higher).

Micromet (Nasdaq: MITI) has a slow stochastic reading of nearly 100. The stock has been on a tear, going from $5 in late November to $8.80 currently. Just under $9 has been strong resistance. In the last 4 years the stock has made multiple attempts to break $9–it got close to $9–but has not touched it in more than 5 years. Therefore, with the stock in extremely overbought territory, approaching strong resistance, the end of this rally may be in sight. That said, a break above $9 could trigger a further spike.

 

IDENIX Pharmaceuticals (Nasdaq: IDIX) has nearly doubled so far this year, going from near $7 to hitting a high on Wednesday of $13.68. Indicators are overbought, as can be expected with such a sharp move. Levels to watch are the recent high at $13.68, Wednesday’s low at $11.62 and Monday’s low at $8.94. Also of note is that volume is declining since the gap higher on Monday.

Dendreon (Nasdaq: DNDN) has nearly doubled this year as well; it closed on January 4 at $7.6 and hit an intra-day high today (so far) of $14.66. After the stock gapped down from above $35 to below $15 in August 2011 it has struggled to stay above $14. With the recent move higher the stock again is struggling at this level. A breakout could mean a big move to the upside, but in overbought territory,with resistance present and volume declining since the initial move early in the year this one deserves to be watched.

Summary

These 5 stocks to watch present opportunities to the upside and downside. Each have crucial levels to watch which could trigger further buying if resistance is taken out, or could trigger selling if a recent daily low is penetrated (for example). All are very overbought, and when this occurs it means traders are in greed or fear mode. In this mode moves happen hard and fast, and can mean big gains or big losses in a short period of time.