Extremes To Buy & Sell

The stock and bond markets are both historically overvalued, caution is still warranted until a significant correction when we can buy for effect.

Overbought & Overvalued

Here is a list of VSL stocks that are overbought and should be trimmed or exited. Companies with high forward PEGs – over 2 – or negative PEGs are most at risk. Whether you sell all or some depends on your risk tolerance, goals and current asset allocation:

CompanySymbolRSIFwd PEG
Visa(V)832.01
Brookfield Asset Mgt(BAM)83-1.47
Apple(AAPL)782.35
Goldman Sachs(GS)78-3.42
Johnson & Johnson (JNJ)77.264
McDonald’s(MCD)761.98
Starbucks(SBUX)757.03
Microsoft(MSFT)744.74

There are a lot more stocks with RSI that are overbought, but do not have poor valuations as of yet. Those stocks should not be bought, but do not necessarily have to be sold for long-term holders. Though, if you have profits on anything with an RSI over about 65, I think you can take all of your profits and just leave your initial investment on the table. 

An example would be Alphabet (GOOG) which has an RSI of 80, but a PEG of only 1.176. We don’t want to buy Alphabet right now, but a pullback of around 10-20% would likely be worth looking at for buying.

Make sure to do this exercise on your stocks at least once a month. Check the RSI and make sure their valuations are in line. For more companies, PEG is worthwhile. Financial and real estate companies use different metrics. 

Oversold & Undervalued

The mirror for buying is to find companies that are oversold but maintain good valuations. Here again, we can use simple RSI and forward PEG. 

CompanySymbolRSIPEG
Walgreens Boots(WBA)30.25
First Solar(FSLR)39.09
Ford(F)45.157

As you can see, there is still almost nothing worth buying. I only included Ford because I think they are about to enter other businesses with the amazing technology I’ve seen and read about. Typically we want RSI below 40. The longer term charts and Elliott Wave are saying Ford is near, but not necessarily at a bottom. It would have downside to about $7-8 per share. I’m inclined to nibble though for 1%. 

First Solar I like selling the $50 March puts for a couple percent. Elliott Wave absolutely loves this stock with upside over $100 per share. Since their move to be the biggest thin film tariff protected solar panel maker, their upside looks pretty big as they supply commercial and utility scale projects. 

Walgreens seems to have caught the bid zone as this is where private equity firms are looking to buy it. In fact, there was already the one failed offer. Underlying Walgreens is a lot of good real estate. Downside is minimal at this point. I am selling March $52.50 puts and I think if you wanted to take a 1% stock position, you could do that too. 

Disclosure: I am/we are long fslr, f, wba. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.