Rally Getting Overbought, Cut Long Positions: Charts

Friday, 7 Aug 2009 | 5:19 AM ET

After such an unprecedented rally in worldwide markets since the bottom in March, it's tough to see how much further stocks can go, Steven Mayne, head of research at Falcon Securities, said Friday.

"By the looks of things, our rally does really seem very overextended now," Mayne said. "We're getting towards levels where the general market is overbought."

"That doesn't necessarily mean we should start looking to short the markets straight away," Mayne told CNBC. "Something can stay overbought or oversold for a great period of time. When the market tends towards such overbought levels, maybe start reducing our long exposures… start taking some chips off the table and wait and see where the next move is going to be."

"What I really want to get across here is because they are very overbought at the moment, maybe start taking some long positions off as opposed to blindly going short on these stocks at the moment," he added.

If the market is going to fall, stocks to be looking at on the downside should include companies like UK miner Antofagasta , Mayne suggested.

"A number of the FTSE mining stocks really have been performing incredibly well recently in the markets and now even these are looking overbought," he said. "So if we do start seeing the market turning around, Antofagasta, (BHP) Billiton or even Kazakhmys do start looking very overbought as well. And really for those people who are trading on the shorter terms, so maybe day-to-week traders, the mining stocks have been a great source of upward moves and for long speculators, and should hopefully really soon become an excellent place for short speculators as well," he said.

The same goes for UK retailer Next , Mayne said.

"The retailers aren't normally quite so volatile on a day-to-day basis, as the miners can be," he said. "So for people who don't like trading whilst biting their fingernails, maybe Next will be a slightly nicer thing to start shorting."


  • Pro-Russian activists seized the main administration building in the eastern Ukrainian city of Donetsk.

    Deadly clashes in eastern Ukraine have spiked fears of all-out war in the region. So who are the armed, flag-waving rebels who appear to be behind it all?

  • An employee wipes a TV screen in a shop in Moscow, on April 17, 2014, during the broadcast of President Vladimir Putin's televised question and answer session with the nation.

    Russian President Vladimir Putin warned of possible disruption to Europe's gas supply on Thursday, as the U.S. confirmed it would send additional military support to Ukraine.

  • The recovery in the EU's car industry carried on through March, providing some much needed cheer for automakers.

  • Amazon is facing fresh strikes in Germany after pay negotiations with the country's second-largest union Ver.di broke down, the Financial Times reports.

Contact Europe News


    Get the best of CNBC in your inbox

    › Learn More

Europe Video

  • Jan Dunning, CEO of St Petersburg-headquartered hypermarket chain Lenta, says the situation in Ukraine has had no impact on the group, as consumer confidence remains unaffected in Russia.

  • Vincent Deluard, European strategist at Ned Davis Research Group, says the strong euro is a problem for the region's companies, especially for the large exporters.

  • European shares closed higher on Thursday as investors brushed aside concerns regarding Ukraine and focused instead on Wall Street earnings and the latest U.S. jobs data.