3 large caps with RSIs that scream “oversold”

Despite a weak start to the year, it appears that stocks have regained their mojo and continue to build on the bullish momentum that began last quarter. All key indexes have returned to all-time highs in a stunning recovery that Wall Street is still grappling with.

Considering the strong performance of stocks overall, especially the continued strength of the S&P 500 Index this week, it’s worth taking a close look at individual stocks that are trending down rather than up. In recent weeks, three large-cap stocks have diverged violently from their peers to the point that their relative strength indices (RSIs) now suggest they are oversold.

The RSI, a widely respected technical indicator of a stock’s overbought or oversold status, calculates a score between zero and 100 based on the previous 14 trading days. A reading below 30 indicates oversold conditions and suggests a potential rebound, while a reading above 70 signals overbought conditions and implies a likely pullback. Let’s dive in and see how RSI can be used to our advantage.

Docusign Inc.

Electronic signature platform actions DocuSign Inc. NASDAQ: DOCU it had enjoyed a solid year-end rally with the rest of the market, gaining 70% in the first weeks of January. But a 20% drop in the past week will have reminded investors that DocuSign is still a shadow of its former self and a stock that needs to demonstrate that it has changed for the better.

Readers will remember DocuSign as one of the darlings of the pandemic and one of the textbook cases of those tech stocks that went from boom to bust in its aftermath. Last month, news that two private equity firms were competing to acquire the beleaguered SaaS company sent shares soaring. But last week’s update that talks with both had “stuck” understandably had a backlash that landed them in their current spiral.

However, with an RSI reading of 30, DocuSign shares are firmly in oversold territory and investors should wait for a rebound.

Air Products and Chemicals Inc.

Air Products and Chemicals Inc. NYSE:APD it’s one of the few stocks that didn’t rally in November and December. Instead, it continued the slow slide that began in 2022, which this week turned into something pretty ugly. An ugly miss on both headline numbers in their first-quarter report earlier this week confirmed investors’ worst fears and sent stocks plunging to four-year lows.

However, with the RSI already at 22, the bears are unlikely to be able to keep up the pressure, and we are already seeing signs of consolidation. Tuesday’s low was not retested and the stock has closed higher in both sessions since then.

The opportunity here is for quick entry and exit, as long-term upside simply does not exist right now for APD. Investors should look for shares to reach $220 and expect a strong, albeit short-term, rebound through the critical $228 level.

Charter Communications Inc.

Like the APD, Charter Communications Inc. NASDAQ:CHTR shares have diverged from the rest of the market since last quarter, but a 25% drop from last week set it apart. It released a disappointing earnings report last week, with slowing growth spooking investors, prompting analysts to downgrade the stock.

However, like APD, Charter’s RSI is around 20, indicating extremely oversold conditions. Stocks started rising early in Friday’s session and investors may be considering the dead cat bounce here. The stock has returned to trading at 2017 levels and one must think that the worst case scenario is already a given after this week’s collapse.

Look for stocks to gain at Friday’s close, with a strong likelihood that they will continue to rise into early next week. Investors should exercise strong risk management when picking winning stocks, as any turn south could force a retest of this week’s lows.

Before you consider Air Products and Chemicals, you’ll want to hear this.

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