The S & P 500 saw modest gains for the week, but there are concerns that some stocks may be overextended and due for a pullback. Even though the overall market trend was positive, with a 0.6% weekly gain, there are signs that the artificial intelligence-driven rally might be losing steam. This is evident in the 4% decline of AI favorite Nvidia, leading to fears that the tech-heavy market could be entering a correction phase.
Stock Screener Analysis
Using the 14-day Relative Strength Index (RSI) as a metric for identifying overbought and oversold stocks, CNBC Pro conducted a search to find potential candidates for pullbacks or rebounds. Stocks with an RSI above 70 are considered overbought, indicating a possible downturn, while those with a reading below 30 are deemed oversold, signaling a potential turnaround.
Microsoft, a tech giant benefiting from AI investments, was identified as one of the most overbought stocks with an RSI of 74. Despite a 20% increase in share price this year, analysts remain optimistic about its future potential, forecasting a further 9% upside. However, caution is advised as the high RSI may indicate a looming correction.
Corning, a manufacturer of specialty glass, has seen a significant surge in its stock price, up 31% in 2024. However, with an RSI of 74, there are concerns that the stock may be overvalued and due for a downward correction. Analysts suggest a possible 4% decline in the near future, urging investors to be cautious.
American Airlines, with an RSI of 29, is among the most oversold stocks on Wall Street. Despite a 19% decline in share price this year, analysts believe there is significant upside potential, forecasting a more than 37% increase. The airline’s recent struggles, including a drastic drop in stock price after cutting its earnings guidance, have raised concerns but also created opportunities for value investors.
CoStar Group, a real estate data firm, has an RSI of about 19, indicating an oversold condition. Despite a 15% decline in stock price in 2024, analysts remain optimistic about its future prospects, estimating a potential 42% rally. A recent market outperform rating and increased price target signal confidence in CoStar’s ability to rebound and deliver returns for investors.
Market metrics such as the Relative Strength Index provide valuable insights into the momentum and potential of individual stocks. By analyzing overbought and oversold conditions, investors can make informed decisions about when to buy, sell, or hold positions. While high RSI readings may suggest a stock is overvalued and due for a pullback, low RSI readings could indicate an undervalued opportunity for gains. It is essential for investors to consider these metrics alongside other fundamental and technical factors when making investment decisions in a volatile market environment.