Every day in our Bespoke Morning Lineup, we publish a list of overbought and oversold S&P 500 stocks that are likely due to experience mean reversion based on historical trading patterns.  In the table below, we show “S&P 500 overbought stocks most likely to fall” and “S&P 500 oversold stocks most likely to rise.”

After the close each day, we gather a list of the most overbought stocks in the S&P 500.  We then look at each stock that is overbought and see how it has performed over the next week when it has been at similarly overbought levels.  The names that make our daily table in the Morning Lineup (shown below) are the ones that typically trade the weakest when they get this overbought.  For example, Devon Energy (DVN) is currently trading overbought by 2.71 standard deviations above its 50-day moving average.  When it has been this overbought in the past, it has averaged a decline of 1.88% over the next week with positive returns 32.1% of the time.

The second table below shows the stocks that have historically traded the best over the next week when they have been at similarly oversold levels.  AVGO is currently trading 2.36 standard deviations below its 50-day moving average.  When it has been this oversold in the past, it has averaged a one-week gain of 9.43% with positive returns 75% of the time.

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