Which stocks are most overextended relative to the 200-day MA?
When volatility increases following a big move to the upside and not least in the region of a big round number (2000) thoughts turn to what shares are most susceptible to mean reversion. In order to answer this question I created a spreadsheet for the constituents of the S&P500 and ranked them by overextensions relative to the 200-day MA.
The most immediate impression is the high number of healthcare/biotech stocks at the top of the list. Part of the reason for this is the heightened M&A activity evident in the sector so I clicked through the first 50 charts to find clear accelerations.
Southwest Airlines rallied from $13 to $35 in little more than a year. This week’s downward dynamic has at least checked the advance and there is increased potential for a reversion back towards the mean which is currently 21% below today’s price.
Kroger has rallied from $35 to almost $55 since February. A break in the progression of higher reaction lows currently near $51.30 would increase potential that a deeper correction is underway.
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