Despite a recent decline in the S&P 500, certain stocks within the index have entered a state of overbought territory.
The S&P 500 experienced a decrease of over 1% during the week, breaking a streak of five consecutive weeks of gains. This shift can be attributed to investors seeking to secure profits following a substantial rally fueled by the excitement surrounding artificial intelligence and optimism regarding the avoidance of an economic recession in the United States.
However, an examination of the relative strength index (RSI) for several stocks in the index indicates that investors may want to consider reducing their holdings in certain other companies as well.
When the 14-day RSI surpasses 70, a stock is regarded as overbought, signaling that investors should contemplate reducing their exposure. Conversely, if the 14-day RSI falls below 30, it suggests that a stock is oversold, presenting a potential buying opportunity.
Now let’s explore the S&P 500 stocks that are currently deemed the most overbought. Johnson & Johnson, with a 14-day RSI of nearly 92, holds the title for the most overbought stock in the index. Despite the broader market trend, this stock experienced a modest 1% increase during the week.
Most analysts are not optimistic about Johnson & Johnson, as only 26% of them recommend buying the stock. However, Terence Flynn from Morgan Stanley highlighted the potential of its immunology drug JNJ-2113, which could be an undervalued pipeline driver for the company and, in a bullish scenario, achieve peak sales exceeding $5 billion.
Other notable companies on the overbought list include airlines Delta and Southwest, as well as cruise operators Royal Caribbean and Carnival. All four stocks exhibit RSIs above 83, although analyst consensus varies for each company.
More than 85% of analysts have a buy rating on Delta, while over half of those covering Royal Caribbean recommend buying the stock. On the other hand, only 4 in 10 analysts rate Southwest and Carnival as buy.
Conversely, there are stocks that currently find themselves in an oversold condition, suggesting a potential rebound. Let’s take a look at the S&P 500 stocks with the lowest 14-day RSI.
At present, Akamai Technologies holds the position of the most oversold stock on Wall Street, with an RSI of just under 12. This cybersecurity company experienced a decline of over 3% during the week and is down nearly 4% for the month.
Despite the oversold status, analysts do not express much enthusiasm for the stock. Only one-third of those covering Akamai recommend buying it, and the average analyst price target suggests a modest 7% upside over the next 12 months.
Additionally, solar stocks Enphase Energy, SolarEdge Technologies, and First Solar have also entered the oversold category, exhibiting 14-day RSIs of 21.8, 16.7, and 20.9, respectively. These three stocks have suffered substantial losses in the second quarter, with each declining by more than 15%. Enphase and SolarEdge have also experienced year-to-date declines, while First Solar remains up 23% in/2023.
Nevertheless, analysts maintain a bullish outlook for these three solar companies, with over 60% of them issuing buy ratings on the stocks.
