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Kensho Stats

Overbought February: 10 stocks ready to drop based on statistics

An employee selects a packaged HP desktop computer from a pallet in a London warehouse.
Simon Dawson | Bloomberg | Getty Images
An employee selects a packaged HP desktop computer from a pallet in a London warehouse.

As the stock market stages a massive, consistent rally, a group of companies in the S&P 500 are trading in overbought territory, setting up these names for a potential drop, if history is any guide.

The S&P 500 index closed February with its fourth consecutive month of gains, up about 11 percent in that period for its best four-month streak since December 2013.

This month, the equity benchmark closed in the red only four times, a feat that hasn't occurred since May 1990, according to CNBC's analysis using data from FactSet.

Similar to other powerful rallies, 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 back to their moving averages after big moves above them.

Using the quantitative tool Kensho, CNBC PRO searched for stocks in the S&P 500 that are trading more than one standard deviation away from their 50-day moving average. Then, we grouped the ones that have a high probability to move back to their mean based on their trading history at these extreme levels.

HP is one of the companies on the list, with the stock trading 3.2 standard deviations away from its 50-day moving average. HP is the result of Hewlett-Packard splitting into two companies last year.

Shares of the PC maker are up 17 percent in the past month compared with a gain of 3 percent for the S&P technology sector. Based on similar moves in the past, HP's stock posted a negative average return of 1 percent within five trading days, according to Kensho.

—CNBC's Robert Hum contributed to this story.

Disclosure: NBCUniversal, parent of CNBC, is a minority investor in Kensho.