Over Extended – TJX TSCO AGYS UVV

The stock market continues to show good strength with the S&P and Nasdaq appearing stronger than the Dow. This nothing to worry about since the Dow is a price weighted index and its value is controlled largely by a few of the high priced companies in that index. The way the index of 30 stocks is built is such that the very high priced stocks have a much bigger weighting and influence. The Nasdaq in particular has been roaring and can now be considered over extended. This means that the index has climbed too far above its 50 day moving average (see below courtesy of bigcharts.com).

The moving average will soon steepen to the upside and at some point the index needs to come back down to meet the moving average. A healthy market is when the index pulls back a little to approach the rising moving average then bounces back up again staying above that average. The best thing the market could do here is pull back a little on low volume or move sideways for a while so the moving average can catch up to the index. Of course I can’t do the bidding of the market and it could continue up and stay extended for a long while.

From an investors view point we remain in buy mode, manage each of your holdings individually. Add to them as they consolidate and jump up again but don’t be too aggressive while the index is extended. A pull back in your stocks as the index pulls back is normal and healthy. Try not to get stopped out by buying too much too fast which moves up your cost basis. Keep the cost basis (break even point) well below the current market price. If and when you see a consolidation in the index as long as it is on low volume add to your positions and initiate new positions in other companies. As long as the index (or your stocks) don’t pull back on high volume then try and stay invested.

Here are a few stocks that have recently jumped up on volume with good earnings and are now consolidating in their quiet area. Add them to your watch list but remember strike them off if they fall back on high volume and don’t buy just before earnings.

TJX - $42.13

TSCO - $58.30

AGYS - $11.50

UVV - $53.81