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Overbought

Illinois Tool Works (ITW) Will Drop At Least 3 Percent SoonIllinois Tool Works Inc has been trending up for more than two years. As the stock moves up, it naturally cycles up and down maintaining its upward bias. Some technical indicators are displaying major signals that the stock will soon drop. The relative strength index (RSI) is at a rarely observed extreme level; a combination of indicators also point out trouble on the horizon. The stock will most likely continue its upward trend over the long-term; but this next natural cycle down could impact investors. How bad will history repeat itself? The RSI is at 84.5283 and tends to determine trends, momentum, overbought and oversold levels as well as likelihood of price swings. I personally use anything above 75 as overbought and anything under 25 as oversold. The RSI is currently overbought and is at one of its highest levels ever. It can only take the stock down from here. The positive vortex indicator (VI) is at 1.1854 and the negative is 0.6629. When the positive level is higher than 1 and higher than the negative indicator, the overall price action is moving upward. The opposite is true when the negative is higher. I have created an algorithm (called the SAG gauge) which signals when stocks are truly overbought and oversold. The algorithm indicates when a particular stock meets multiple criteria culminating in an oversold or overbought signal. The overbought signal recently occurred and could occur again over the next few days. Seeing the other signs of a downturn, proactively positioning short for the stock's decline prior to seeing this verifying signal could increase profits. Upon back-testing this indicator, it has signaled overbought status 104 times dating back to 1980. The stock drops at least 1.75% over the following 35 trading days in eighty percent of these occurrences. The stock drops at least 3% seventy percent of the time and forty percent of the time loses 5.75%. Even though a drop does not always occur, these numbers combined with the following statistics have instilled confidence that a greater than 2% drop is looming. The RSI has been at or above its current level ONLY seven times in the history of this stock. The stock always drops over the next 25 days with a minimum drop of 0.93%, median decline of 2.52%, and average drop of 4.58%. Only one other time since 2000 was the RSI and positive VI at or above today's level at the same time the stochastic oscillator was overbought with the earnings call three days away. The stock dropped 5.21% over the following 14 trading days on that occasion. The technical indicators for this stock have been in the same or more extreme positions simultaneously only three times in the history of the stock. These all occurred more than 30 years ago. The minimum drop was 9.33% over 16 trading days while the median was 12.82% over 33 trading days. Although not identical to the current technical readings, ten similar instances saw the RSI close to today's 84 reading while the positive VI was at or above its current position, the negative VI was at or below its current position and the stochastic oscillator was overbought. On these occasions the stock dropped at least 4.49% and saw a median loss of 9.72%. Another odd thing has just occurred regarding the positive VI value. It was recently above its current 1.18 level before it dropped below 1 and moved back above 1.18. Although a move like this is normal, the positive level never crossed below the negative VI level. This similar movement has only occurred on five occasions. The minimum loss for the stock was 7.34% and the median drop was 8.50%. It is clear the stock will drop at least 3% over the next 40 days after taking all of this historical information in to consideration. I would not be surprised if the stock lost greater than 5% over this time period. The RSI for the stock is at one of its highest recorded levels ever which indicates there is only one direction for the stock to move. More at LimitlessLifeSkills.com
NYSE:ITWShort
by StockSignaler
Microsoft Corporation (MSFT) Tends To Drop Post-EarningsMicrosoft Corporation has been trending upward as are most stocks and sectors since the U.S. elections last year. Although "good" numbers and much hype surround markets, Microsoft has not had great results after their earnings calls for the last four years. The stock is also at the top of its clearly defined trend channel which has always resulted in a decline over the next few weeks. We have laid out a study of historical movements for the stock in this article. Will history repeat itself again causing a 5% plus drop? When we look at technical indicators, the relative strength index (RSI) is at 78.4752. RSI tends to determine trends, momentum, overbought and oversold levels as well as likelihood of price swings. I personally use anything above 75 as overbought and anything under 25 as oversold. The RSI is currently overbought. This milestone has occurred 112 times and its significance is discussed below. The positive vortex indicator (VI) is at 1.3159 and the negative is 0.6303. When the positive level is higher than 1 and higher than the negative indicator, the overall price action is moving upward. When the negative level is higher than 1 and higher than the positive indicator, the stock is moving down. The positive and negative are at somewhat extreme levels away from their central point of 1. Their current retreat back to 1 typically flags the end of the upward movement while signaling a drop for the stock. The stochastic oscillator K value is 94.8017 and D value is 81.1292. This is a cyclical oscillator that is highly accurate and can be used to identify overbought/oversold levels as well as pending reversals and short-term activity. I personally use anything above 80 as overbought and below 20 as oversold. When the K value is higher than the D value, the stock is trending up. When the D value is higher that the K value the stock is trending down. The stochastic is certainly in overbought territory. The D value is still well below the K value and it could be a few more days before the D is greater than the K. When this crossover occurs, the stock could be ready to drop. SPECIFIC ANALYSIS Only one other time since 2000 was the RSI and positive VI at or above today's level at the same time the stochastic oscillator was overbought with the earnings call three days away. The stock dropped 5.21% over the following 14 trading days on that occasion. The stock has dropped 12 of the last 17 times from its close price three days prior to the earnings call. Of these 12 occasions, the minimum drop is 0.67%, median drop is 4.40%, and maximum decline is 14.97%. On four occasions since the start of the Dot Com Bubble Burst has the RSI and positive VI been at the same level while the stochastic oscillator was overbought. The minimum days to hit a bottom was 14 and the minimum stock loss was 4.62%. The median stock decline was 5.81% and maximum was 16.54%. On 12 occasions the RSI and positive VI have been near their same levels are higher while the stochastics oscillator was overbought. The stock has dropped a minimum of 3.03% and median of 5.79% throughout these instances. The RSI has closed at or above its current level 112 times since 1986. Over the next 30 trading days from this point, the stock does not always drop, the median decline is 6.86% and average loss is 8.68%. Finally, the stock has been in a discernable trend channel since April 2016. The stock hit the top of this channel on Friday which it has done five other times since it began. The quickest drop from the top has occurred in three days and the slowest bottom occurred in 20 days. The minimum drop from the top of the channel is 3.23%, median is 4.79%, and max is 5.79%. Between all of the aforementioned historics, we are confident the stock could drop at least 3.5% over the following 35 trading days. The significant drop should take shape after earnings are announced around October 26. Remember, even positive earnings have resulted in declines.
NASDAQ:MSFTShort
by StockSignaler