Overbought: 10 stocks ready to drop

Published Wed, May 6 20159:15 AM EDTUpdated Wed, May 6 201512:59 PM EDT

Even though the market appears to be rolling over, many stocks in the S & P 500 have significantly risen above their historical trading range and may be due for a drop as investors sell overvalued names, according to market watchers. Astute traders often look for extreme levels in the market as a way to find buying or selling opportunities. The idea is that—statistically—asset classes tend to revert to their averages. Consider the utility sector, which was the best performing group last year with a gain of 24 percent. Since reaching a record price in late January, however, the sector is now in correction territory, down 12 percent, as investors rotated into more cyclical stocks. Within the S & P, 25 stocks are trading more than 10 percent above their 50-day moving average. Leading the list are shares of Netflix , which are up 60 percent for the year and trade 19 percent above their long-term average. Read More 'Nasty' correction ahead: Firm Among the most overbought sectors, energy takes the crown due to a 10 percent rally since mid-March. So what are some of the outliers that could be set for a pullback? Using the quantitative tool Kensho, CNBC Pro searched for stocks in the S & P 500 that are likely to revert back toward their 50-day moving average. First, we identified companies trading more than two standard deviations away from their long-term trends. Then, based on similar patterns in the past, we grouped the ones that have a high probability to move back to their mean. Yum Brands is one of the companies on the list, with the stock trading 3 standard deviations away from its 50-day moving average. Shares of the fast-food chain are up 13 percent in the past month. According to Kensho, the probability of Yum reverting to its mean stands at 100 percent, based on 10 previous instances that exhibited similar trading patterns. Other names that are trading in recent overbought territory include Avery Dennison , Genworth Financial , Fifth Third Bancorp and Rockwell Automation . Disclosure: NBCUniversal, parent of CNBC, is a minority investor in Kensho.

A KFC restaurant is shown in a shopping mall in Beijing.

Zhang Peng | LightRocket | Getty Images

Astute traders often look for extreme levels in the market as a way to find buying or selling opportunities. The idea is that—statistically—asset classes tend to revert to their averages.

Consider the utility sector, which was the best performing group last year with a gain of 24 percent. Since reaching a record price in late January, however, the sector is now in correction territory, down 12 percent, as investors rotated into more cyclical stocks.