Regions Financial (RF) has been a stellar performer this year, but the rally has become extended (read overbought) and weakening momentum readings suggest this could be a good time to book profits.
In this 12-month daily chart of RF, above, we can see a stock that has doubled in less than a year. Impressive, yes? Prices are above the rising 50-day and 200-day moving averages. It is OK and in fact good to be above a rising moving average line, but you don't want to be too far above the line. A stock that gets too far above its moving averages can be vulnerable to a correction.
Looking at this chart, I would consider the price of RF to be too far above the popular averages. The daily On-Balance-Volume (OBV) line is firmly in the bull camp as it has moved up since early April and suggests that buyers have been pretty aggressive. In the lower panel is the 12-day momentum study. The study is positive and above the zero line if today's price is higher than the price 12 days ago.
Momentum is an indicator that has been researched in academia and found to peak before a price peak. For momentum to become useful to a technical analyst, there needs to be a divergence -- that is when prices make a new high but momentum does not. We can see that "setup" now on RF.
In this three-year weekly chart of RF, above, we can see a mixed picture. RF is above the rising 40-week moving and the weekly OBV line is pointed up. The concern with this chart is the slow stochastic indicator. The stochastic indicator is in a class of tools that attempt to identify overbought and oversold conditions. Readings on this indicator above 80% and better still above 85% are overbought. RF is extremely overbought on this timeframe and a profit-taking reaction would not surprise me at this juncture.
Bottom line: There are at least two ways to book profits on a profitable trade. One way is to take profits into strength and another way is to raise a trailing sell stop. With RF I would like to sell into strength.