By Tom Aspray, MoneyShow.com

With the S&P 500 up more than 8% in the past two weeks, it is important to know which stocks in the index are overbought and whether any are still oversold. The most objective way I have found to measure this is by comparing the weekly or monthly closing price to the Starc band readings.

Over the years, I have found that buying a stock when it is above its weekly Starc+ band is generally a mistake. More often, if I am fortunate to be long a stock that moves above its weekly Starc+ band, it’s best to take some profits.

As noted in "Red Flags Preceded Gold’s Drop," the SPDR Gold Trust (GLD) stayed above its Starc+ band for several weeks before it dropped sharply.

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In all of the S&P 500, Bristol-Myers Squibb (BMY) is the most overbought, but as the table indicates, it is still 3% below its weekly Starc+ band. All of the 10 most overbought stocks are well-known names, and you will note there is a high concentration of consumer staples stocks included.

The four stocks I have selected from the list have the most positive relative performance, or RS analysis patterns. This means that they are performing better than the S&P 500 and are likely to drop less severely than the overall market during one of the all-too-frequent sharp market corrections we’ve been experiencing. Each of the four stocks also pays attractive yields.

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Chart Analysis: Bristol-Myers Squibb (BMY) dropped sharply the week ending Nov. 25 after testing major weekly support, line a, in the $30 area before rallying sharply.

• BMY has already surpassed the late-October highs, which clearly indentifies it as a market leader


• The major 38.2% retracement resistance calculated from the 1999 high of $75.37 is at $38.50


• RS analysis turned positive in the spring of 2011 and is in a well-established uptrend, line c


• On-balance volume (OBV) also looks very strong as it overcame long-term resistance at line d in September


• There is initial support now at $32-$32.75 with the weekly uptrend, line b, at $31

General Mills (GIS) is a $26 billion company whose shares closed right on major trend line resistance (line e) at $40.43. This resistance goes back to early 2010.

• The trading range (lines e and f) is $5.60 wide, giving an upside target in the $46 area


• RS analysis completed its bottom formation in August while the market was under pressure


• Weekly OBV broke out through long-term resistance (line h) in September, just two weeks before the market bottomed in early October


• Weekly OBV has long-term support at line I, while the daily OBV (not shown) looks very strong


• There is first support at $40 with further support at $39-$39.40

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