As the S&P 500 Surges, Some Stocks May Be Overbought
With the S&P 500 nearing its all-time high, some stocks might be experiencing an overbought condition, suggesting a potential pullback is on the horizon. This comes after a strong week of rallying which has driven some stocks to significant gains. CNBC Pro’s stock screener identified several companies displaying overbought conditions, using the 14-day Relative Strength Index (RSI). A 14-day RSI score above 70 is generally considered overbought, hinting at a possible downward trend.
Key Takeaways:
- Retail giant Walmart, with a RSI of 81.7, sits among the most overbought stocks this week. While analysts remain bullish on the company, the consensus price target suggests a potential pullback could be in store.
- Clorox, the bleach and Glad bag manufacturer, shows an RSI of 78.8, indicating a potential pullback. Analyst sentiment is mixed, with a majority rating Clorox as a hold and the average price target sitting below the current share price.
- Kenvue, a consumer health-care company spun off from Johnson & Johnson, also exhibits overbought conditions with an RSI of 78.6. Analysts are divided, with half rating the company a hold and their average price target implying a 5% decrease in the next year.
Inversely, several stocks appear oversold, presenting potential bargain buying opportunities:
- Halliburton and APA, both oil and oil service companies, feature RSI scores of 22.5 and 23.9 respectively signifying potential undervalued positions.
- Occidental Petroleum, another oil company, falls within the oversold category with an RSI of 24.4. Analysts believe all three companies could experience substantial growth in the coming year.
- Moderna, a pharmaceutical company, is also deemed oversold with a RSI of 25.48, despite recent downward trends. Though most analysts rate it as a hold, the average price target suggests significant upside potential.
Delving Deeper: Specific Overbought and Oversold Stocks
Overbought Stocks
To understand which stocks might be facing pullbacks, let’s unpack the specifics of the most overbought names:
- Walmart (WMT): The company has enjoyed a meteoric rise in 2024, reaching new all-time highs and exceeding market performance with a year-to-date return of 53%. Despite this, the overbought signal suggests a potential correction may be in the works.
- Clorox (CLX): This stock climbed nearly 25% in the past three months, but the consensus price target is below the current price, hinting that investors might be overly optimistic.
Kenvue (KVUE): Kenvue’s recent ascent of 29% in the past three months has pushed it into overbought territory. The average price target signals a potential decline in the next year, urging investors to exercise caution.
- Note: This list only represents a few highly overbought stocks. This trend could be reflected in various other companies.
Oversold Stocks
Exploring our list of oversold stocks could reveal potential buying opportunities:
- Halliburton (HAL), APA Corporation (APA), and Occidental Petroleum (OXY) are all within the energy sector, which has lagged behind broader market performance. The lowered oil prices have contributed to their decline, creating a potential entry point for investors looking to capitalize on the projected growth.
Moderna (MRNA) has experienced negative sentiment recently due to a JPMorgan underweight rating and a decline in its revenue forecast. However, the substantial price target implies attractive potential for a reversal in the near future.
- Keep in mind that oversold stocks may continue to decline in the short term, but investing in such companies could be rewarding for patient investors seeking to utilize market dips to their advantage.
Understanding RSI and Overbought/Oversold Conditions
The Relative Strength Index (RSI) is a momentum indicator that reveals the magnitude of recent price changes.
- An RSI above 70 generally signals an overbought stock. This indicates that the stock price has been rising rapidly and may be due for a correction.
- An RSI below 30 suggests an oversold stock. This means the stock price has been declining quickly and might rebound upward.
It’s important to note that RSI is not a foolproof indicator. Other factors like company fundamentals, news events, and overall market trends also play a crucial role. RSI should be used in conjunction with other analysis methods rather than solely relying on it for investment decisions.
Navigating The Market: Tips for Investors
- Don’t get caught up in the hype and focus on fundamentals: Don’t solely invest based on overbought or oversold signals. Evaluate the company’s financial health, growth potential, and market position.
- Diversify your portfolio: Allocate your capital across different asset classes and sectors, mitigating the impact of potential losses in individual stocks.
- Be patient and disciplined: Don’t chase short-term gains. Implement a long-term investment strategy and stick to it, avoiding impulsive decisions fueled by market noise.
While overbought and oversold conditions can signal potential market moves, they are not guaranteed. The market is complex and subject to various influences.
Remember, investing involves inherent risks, and it is critical to conduct thorough research and consult with financial professionals before making any decisions.
