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.
Amazon.com ($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.
Priceline.com (PCLN) ($1182.25 down 12.4% since Feb. 28) set a new all-time intraday high at $1378.96 on March 6, which was shy of its monthly risky level at $1412.50. The stock closed below its 21-day SMA on March 13, then broke below its 50-day SMA at $1250.95 on March 24. This accelerated the downward momentum. Priceline traded as low as $1156.41 on Thursday after failing to hold a quarterly value level, now a pivot at $1192.75. The weekly chart is negative, with its five-week MMA at $1248.43.
Tesla Motors (TSLA) ($207.32 down 15.3% since Feb. 28) Tesla set its all-time intraday high at $265.00 on Feb. 26, and in my March 3 post I indicated that the stock needed to penetrate and hold a monthly risky level at $249.38 to extend upward momentum. Tesla closed below its 21-day SMA on March 19, and then below its 50-day SMA at $209.87 on Thursday. The weekly chart profile is negative, with its five-week MMA at $211.87. Tesla 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 $211.87. That makes today's close important for the Tesla bulls.
Crunching the Numbers with Richard Suttmeier
There are five columns with moving average titles: Five-Week Modified Moving Average, 21-Day Simple Moving Average, 50-Day Simple Moving Average, 200-Day Simple Moving Average and the 200-Week Simple Moving Average.
The column labeled 12x3x3 Weekly Slow Stochastics shows the pattern on each weekly chart with readings from Oversold, Rising, Overbought, Declining or Flat.
Interpretations: (stocks below a moving average listed in Red are below that moving average)
Five-Week Modified Moving Average (MMA) is one of two indicators that define whether or not a weekly chart profile is positive, neutral or negative. The other is the status of the 12x3x3 weekly slow stochastic.
A stock with a positive technical rating is above its five-week MMA with rising or overbought stochastics.
A stock with a negative technical rating is below its five-week MMA with declining or oversold stochastics.
A stock with a neutral technical rating has a profile that is not positive or negative.
The 200-Week Simple Moving Average (SMA) is considered a long-term technical support or resistance and as a "reversion to the mean" over a rolling three to five year horizon. (Even Apple declined to its 200-week SMA in June 2013.)
The 21-Day Simple Moving Average is a short-term technical support or resistance used by many hedge fund traders to adjust positions. A stock above its 21-day SMA will likely move higher over a rolling three to five day horizon and vice versa.
The 50-Day Simple Moving Average is also a technical support or resistance used by many strategists and commentators in financial TV.
The 200-Day Simple Moving Average is another technical support or resistance and I consider this level as a shorter-term "reversion to the mean" over a rolling six to 12 month horizon. (Even Apple tested or crossed its 200-day SMA in nine of the last 10 years.)
Value Levels, Pivots and Risky Levels are calculated based upon the last nine weekly closes (W), nine monthly closes (M), nine quarterly closes (Q), nine semiannual closes (S) and nine annual closes (A). I have one column for pivots, which is a magnet for the period shown. The columns to the left of the pivots are first and second value levels. The columns to the right of the pivots are first and second risky levels.
Investors who wish to buy a stock should use a good-until-canceled GTC limit order to buy weakness to a value level. Investors who want to sell a stock should use a GTC limit order to sell strength to a risky level.
At the time of publication the author held no positions in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff