3 Red-Hot Stocks At Risk of a Pullback

Broadcom Ltd (AVGO), Facebook Inc (FB), and Amgen, Inc. (AMGN) stocks could be vulnerable to a pullback, after hitting record highs

Mar 13, 2017 at 1:58 PM
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The S&P 500 Index (SPX) has closed above its 20-day moving average for 33 straight days, which as been a bullish signal in the past, per Schaeffer's Senior Quantitative Analyst Rocky White. However, when looking at individual stocks on the same hot streak, the same cannot be said. Below, we'll take a look at how stocks perform after long runs above their 20-day trendlines, and analyze three stocks that could be due for a short-term pullback, if past is prologue: Apple supplier Broadcom Ltd (NASDAQ:AVGO), social media titan Facebook Inc (NASDAQ:FB), and drugmaker Amgen, Inc. (NASDAQ:AMGN).

25 Stocks On a Run Above Their 20-Day

Looking at data since 2015, White crunched the numbers for stocks that spent at least 30 straight days above their respective 20-day moving averages. On average, those stocks were lower going as far as one month after a "signal." When stocks were above their 20-day moving average for fewer than 30 sessions, they averaged a positive return during the same time frame. Three months after a signal, both sets of stocks were higher roughly 56% of the time, but those that had spent at least 30 days north of their 20-day were up 1.36%, on average -- less than the average three-month return of 1.53% for the other set of stocks.

stocks above 20-day moving average

Below is a list of 25 stocks that have been above their 20-day moving averages for at least 30 days now, sorted by return during their hot streak. As alluded to earlier, AVGO, FB, and AMGN made the cut.

25 stocks above 20day MA

AVGO Shorts Could Be Running Out of Gas

AVGO has added more than 50% in the past year, and just today touched an all-time best of $227.75. It's already been 37 days since AVGO closed beneath its 20-day moving average, with the stock rallying 26.4% in that time frame. As such, however, AVGO's 14-day Relative Strength Index (RSI) is well into overbought territory, at 79, suggesting a short-term breather could be in the cards.

Plus, short sellers may be running out of gas. During the past two reporting periods, short interest on AVGO dropped 15.5%, much to the stock's advantage. Now, however, just 1.2% of the equity's total float remains dedicated to short interest. At Broadcom Ltd's average daily trading volume, it would take not even two full days to repurchase these remaining pessimistic positions. In the same vein, with both analysts and options traders already in the stock's bullish corner, it's unlikely that upgrades or an exodus of options bears could add fuel to AVGO's fire.

FB Stock Is Beloved By Analysts

FB has been above its 20-day moving average for a whopping 46 days, gaining 18.8% in that time. Despite the public trading debut of rival social media stock and Snapchat parent Snap Inc (NYSE:SNAP), Facebook stock has muscled its way to record highs, peaking at $139.50 today.

As with AVGO, Facebook Inc shares have benefited from a short squeeze, with short interest dropping 12.5% during the past two reporting periods. Now, not even 1% of the stock's available float is dedicated to short interest, representing a meager one day's worth of pent-up buying demand, at FB's average pace of trading. Further, the stock -- in overbought territory with AVGO -- is already beloved by analysts, with 27 out of 30 offering up "buy" or better opinions.

AMGN Rally Hasn't Convinced Wall Street

It's hard to believe that in just early November, AMGN was sitting at an annual low of $133.64. Since then, the stock has rocketed 35% higher -- and barreled through resistance in the $175 area -- thanks to bull gaps in early January and February, stemming from a patent win and earnings, respectively. AMGN has now been above its 20-day trendline for 30 straight days, logging a gain of 18.6% in that time, and like AVGO and FB, just notched an all-time high today, peaking at $182. However, the stock has since pulled back 0.5% to sit at $180.62, despite upbeat data regarding Amgen's Repatha drug. 

Also like AVGO and FB, AMGN is in overbought territory, with a 14-day RSI of 76. However, unlike the other two, Amgen, Inc. remains plagued by pessimism, which could work to the equity's advantage. To start, short interest soared 48.7% during the past two reporting periods, and options buyers have been picking up AMGN puts over calls at a rapid-fire rate. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 1.18 is in the 80th percentile of its annual range. Should shorts or options bears hit the bricks, AMGN could resume its quest for record highs. Meanwhile, nine out of 15 analysts maintain tepid "hold" opinions, leaving the door open for upgrades to lure more buyers to the table. 

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