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The Nasdaq 100's Most Oversold Stocks

By: Minyanville
Posted: 9/23/2013 12:40:00 PM
Referenced Stocks: AAPL;MCHP;QQQ;SRCL;XRAY

The very weak close last Friday has stimulated quite a bit of debate about the stock market's direction. Many of the major averages broke through weekly resistance last week, suggesting that the major uptrends had resumed.

On the other hand, Friday's sharp drop caused the formation of what appears to be daily top formations. For example, the PowerShares QQQ Trust ( QQQ ) formed a doji last Thursday, and the weak close on Friday triggered a LCD sell signal. The relative performance analysis of the QQQ indicates it is a market leading sector. It has next good support at $77.60-$78.20.

As I reviewed in depth on Friday , the volume analysis has confirmed the market's action, while many of the A/D lines, though positive, have made new highs. This makes the action early this week important. In early trading, the apparent election victory by Germany's Angela Merkel gives the market one less thing to worry about, but the futures are a bit lower in early trading.

The weekly starc band scan of the Nasdaq 100 (INDEXNASDAQ:NDX) revealed that those stocks that were closest to their lower or starc- bands. Apple Inc. ( AAPL ) is leading the financial headlines, but with last Friday's close, it is the second most oversold stock on the list. It closed at $466.98, which is just 7.2% above the weekly starc- band at $433.20. It is 15.7% below the starc+ band at $540.30.

I use these scans to focus on segments of stocks that are then examined in more detail by looking at the volume and relative performance over multiple time frames. Three of these stocks look attractive at levels not far below last Friday's close.

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Chart Analysis : The weekly chart of Apple shows that it pulled back to its breakout level, line a, last week.

Stericyle Inc. ( SRCL ) is a $10 billion waste management company that broke out through major resistance in March and hit a high of $119.49.

Click to enlarge

DENTSPLY International Inc. ( XRAY ) is a $6.27 billion medical instrument and supply company that focuses on dental products.
Microchip Technology Inc. ( MCHP ) is a $7.94 billion specialized semiconductor stock that also yields 3.50%.
What It Means : The major averages and the S&P (INDEXSP:.INX) futures could drop back to their rising 20-day EMA, which is at 1679 for the futures. The next two to three days will be an important test for the market.

The technical action after last week's close indicated that Apple, Stericycle, and Microchip Technology should be a bought on a pullback. However, Apple is up sharply in pre-opening trading, on the back of very strong phone sales, so a good risk reward entry looks unlikely right now. The technical outlook for Dentsply International is more consistent with a false breakout.

How to Profit : Editor's Note: This article was written by Tom Aspray of MoneyShow .

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