Following a record-setting week on Wall Street, some stocks that have recently surged may be facing downward pressure in the near term. The S&P 500 index reached a new all-time high on Friday, buoyed by investor optimism that the Federal Reserve would lower interest rates in response to a disappointing August jobs report. However, this optimism quickly waned, as the index reversed course and concluded the day lower. Despite this fluctuation, the S&P 500 managed to finish the week with a marginal gain, hovering approximately 1% below its peak.
As the market approaches these historic levels, analysts are raising concerns about certain individual stocks that have become overbought, making them susceptible to declines. According to a CNBC Pro analysis that utilized LSEG data, stocks with a 14-day relative strength index (RSI) above 70 are categorized as overbought. In contrast, stocks with an RSI below 30 might be considered oversold, suggesting they could be due for a rebound.
Among the stocks that have been identified as overbought are shares of Alphabet, which experienced a remarkable rise of over 9% this week. This gain propelled the company’s 14-day RSI to 84.1, marking it as the highest in the analysis. A favorable ruling in Alphabet’s ongoing antitrust case with the U.S. Department of Justice significantly boosted investor confidence, adding over $230 billion to its market capitalization. A federal judge’s decision to allow Google to retain its Chrome browser was particularly reassuring for stakeholders, as it underscores the essential role of this software in Alphabet’s financial performance.
Other notable entries on the overbought list include data storage firms Seagate Technology and Western Digital. Seagate’s shares rose by more than 10% this week, while Western Digital stocks jumped around 15%. Morgan Stanley analyst Erik Woodring highlighted Seagate as a top pick, citing “increased confidence” in the firm’s technological advancements. However, the stock’s 14-day RSI, which sits at 75.4, indicates that it may have surged too quickly.
Conversely, the market also saw some stocks classified as oversold. Dollar Tree, for example, has seen its shares decline by more than 8% after providing a lackluster yearly outlook that fell short of Wall Street expectations. This disappointing guidance overshadowed the company’s otherwise positive second-quarter results, contributing to its current position in the oversold category.
As markets navigate through these fluctuations, investors are advised to monitor these dynamics closely, especially given the potential for corrections in overbought stocks amidst a backdrop of shifting economic sentiments.
