Fin - Breakout - US

Tips for an Overbought Market: Weed ‘Em and Reap


With virtually no follow through confirming or extending the best week for stocks in two years, I got to thinking, and before long, eureka! the old Stealers Wheel song, which sums it up perfectly, came to mind.

Yes I'm stuck in the middle with you,
And I'm wondering what it is I should do,
It's so hard to keep this smile from my face,
Losing control, yeah, I'm all over the place,
Clowns to the left of me, Jokers to the right,
Here I am, stuck in the middle with you.

If you were fortunate enough to own some of the outsized gainers over the past week and a half, congratulations.

If you still own them, bon voyage. I salute your bravado and hope you're right.

If you have already acknowledged the gift and used the rally to book some profits, well done.

But if you've still got that smile on your face and are wondering what it is you should do, I've put together a list of stocks that have had double-digits gains, look ripe for some profit taking, and are, as we dub them here at Breakout, LHF's (or low-hanging fruit).

The first LHF on the list is Sandisk (SNDK). The stock popped off a seven-month low as semiconductors lead a broader rally in technology. In terms of resistance and volume, it looks like a long uphill fight for Sandisk with ample (and likely eager) sellers at $45, $50 and $55.

Google (GOOG) is a similar story. Although the stock is above its 50-day moving average for the first time in four months, it is also the most overbought that it has been since January, when it was trading more than $100 per share higher than it is currently. Could Google get back to $643 a share? Sure. But it won't be easy -- or pretty.

The third candidate on our "LHF" list is Apollo Group (APOL). Not surprisingly, we again have a terrible-looking chart, only this time of a stock that's been falling for 2 1/2 years. If you are a long-term holder and intent on waiting for the stock to get back to $90 a share -- good grief. If you are anything else and have yet to pull the trigger on last week's gains -- good luck.

More broadly speaking, this is not a macro call on the market. It is simply a reminder, as Macke puts it, "that if you're going to buy the dips, you must also sell the rips." You can't be all bargain-hunter and never a profit-taker -- especially with the start of earnings/disappointment season just a week away.

The 2nd half started with a bang. The year-to-date tallies of the benchmarks are now all comfortably positive and more so. Macke reminds us there's a giant hot beast called August just around the corner.

As always, the hombres love a good joust and welcome your comments and feedback. Comment below or email us at

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