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Pop! Goes the Momentum Bubble


NEW YORK (TheStreet) -- Momentum stocks reversed direction in March, and Apple (AAPL) is the only winning stock on my list of eight momentum stocks. It's up just 2.1% since the end of February.

When a momentum stock falls out of overbought territory, the question is: how long will it take for this stock to decline to and below its 200-day simple moving averages in a reversion to the mean?

Look at the all the red that has spread among the key moving averages we show in today's Crunching the Numbers table on page 2 of this article. Apple is the only stock among the eight to be above all five key moving averages. Seven are below their five-week modified moving averages and 21-day SMAs. Seven are below their 50-day SMAs. Amazon (AMZN) and LinkedIn (LNKD) are below their 200-day SMAs.

Six of eight stocks show declining 12x3x3 weekly slow stochastics. This changes the direction for momentum results in negative weekly charts, a symptom of popping stock-specific parabolic bubbles.

We crunched the numbers to help you decide if and when to invest. Here are the eight profiles. Today's Crunching the Numbers table follows.

Apple ($537.46 up 2.1% since Feb. 28) traded as high as $549.00 on March 26, so the stock remains between my annual value level at $517.05 and its annual risky level at $586.06. The last test of $517.05 came on Feb. 27, and the stock still has the technical credentials to buck the declining momentum trends in today's table and rally to $586.06 at some point in 2014. The key is maintaining a positive weekly chart and staying above its five-week MMA at $531.54 on a weekly closing basis. ($338.47 down 6.5% since Feb. 28) traded to its March high at $376.62 on March 13, then fell below its 50-day SMA on March 19. On Thursday the stock slipped below its 200-day SMA at $338.19 to as low as $330.88, which gave investors the chance to buy the stock at its annual value level at $334.95. Keep in mind that investors had several opportunities to sell this stock at its quarterly risky level at $402.56 in January. The weekly chart is negative, with the five-week MMA at $361.71.

Chipotle (CMG) ($559.18 down 1.1% since Feb. 28) set an all-time intraday high at $622.90 on March 21, then slumped to as low as $554.25 on Thursday, staying just above 50-day SMA at $553.90. The stock failed to hold its quarterly pivot, now a risky level, at $601.33, providing a downside warning. The risk is to the semiannual value level at $510.69. Chipotle will likely end the week below its five-week MMA at $566.67, but its 12x3x3 weekly slow stochastic reading is still slightly overbought at 81.46.

Google (GOOG) ($1114.28 down 8.3% since Feb. 28) set its all-time high at $1228.88 on Feb. 26, and failed to hold its 50-day SMA at $1178.54 on March 24. It traded as low as $1102.10 on Thursday. The stock failed to hold its monthly pivot at $1216.00 on March 10, which proved to be the momentum drag I warned about in my March 3 post, "Can Apple and Amazon Regain Momentum?" An annual value level is $1043.30. The weekly chart is negative, with its five-week MMA at $1164.70.

LinkedIn ($188.54 down 7.5% since Feb. 28) lost its momentum status in October after setting an all-time intraday high at $257.55 on Sept. 11. The stock has been below its 200-day SMA at $217.05 since Feb. 26. This week's pivot at $183.63 has been a magnet the last three days. The company has not been publicly traded long enough to have a 200-week SMA. Thus there is not enough price history to have semiannual or annual value levels, pivots and risky levels. The weekly chart is negative with its five-week MMA at $200.18.

Netflix (NFLX) ($364.18 down 18.3% since Feb. 28) traded to a new all-time intraday high at $458.00 on March 6, and then had a daily close below its 21-day SMA on March 10. That provided the first warning. Then on March 21 the stock closed below its 50-day SMA at $412.60, which accelerated the downward momentum. Netflix traded as low as $361.53 on Thursday, with the 200-day SMA at $329.28 and a semiannual value level at $328.21. In my March 3 post, I warned that if the stock cannot get above $447.25 and there's a close below its 21-day SMA, the downside risk is to the 50-day SMA. The weekly chart is negative with the five-week MMA at $405.13.

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