Though the market's been rallying for several weeks now, some of its leading stocks may have sprinted a little too quickly...
rather than pacing themselves. Three of the market's
most over-extended charts are those of Nextwave Wireless Inc. (WAVE), ADTRAN Inc. (ADTN), and 3Com Corporation (COMS). Given how overbought each one is -
paired with a recent stumble on their charts - all three may be prime 'sell' candidates if not outright shorting/bearish ideas. Here's a detailed review.
Things were going great for shareholders of
Nextwave Wireless Inc. (
WAVE). In March, the stock jumped back above its 20 day moving average line, and managed to ride that train all the way from 13 cents to 50 cents. A couple of volatility blips popped up, but it was still a solid gain.
The bearish move over the last few days, however, can't be chalked up to a volatility blip... quite the opposite actually. WAVE calmly rolled back under its 20 day line, and has been hitting resistance there ever since.
Volume has been light, but the damage may have already been done. A return to 10 cents isn't completely out of the question, though we'd advise using a tight trailing stop for any trades.
ADTRAN Inc. (
ADTN) popped up on our bearish radar when running a routine scan for overbought stocks (long-term, weekly charts) that are starting to crumble. ADTN certainly fits that bill, but the sell signal has been augmented by
another coincidental pattern that says ADTRAN ... a major resistance line.
ADTRAN shares have been plagued by this ceiling line (blue) since 2003, and it's been quite reliable as a cue. In fact, this same bearish trading system caught the 2005/2006 pullback, and scored a 14% gain with it.
As for a target price, if the pattern holds up, ADTRAN shares could fall back to anywhere between $10.00 and $16.00. For that reason, this may be an idea that's better monitored than pegged to fall a certain distance.
3Com Corporation (
COMS) looks a lot like Nextwave, except more exaggerated. COMS made huge gains between March and June, but the weight of those gains proved to be too much over the last eight weeks. The stock fell -
sharply - under its 20 day moving average line in June, and have been falling ever since.
The bulls made one last revival effort last week, but COMS started to fall again as soon as the ceiling at the 20 day line was met. If $3.60 fails as support (the
final final straw), 3Com Corporation shares may not find solid ground again until the low $2.00 area. That's a stretch goal to be sure, but a possibility all the same.
Though none of these stocks are an official SCN short/bearish pick today,
any of them could be in the near future.
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