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.