Key points
- Several stocks exhibit extreme overbought conditions, indicated by the Relative Strength Index (RSI), a measure of recent price changes.
- DKS, WSM, and SG exhibit extreme overbought conditions, potentially signaling readiness for a pullback.
- The combination of rising earnings, negative sentiment and rising stock prices has pushed DKS, WSM and SG into highly precarious overbought territories.
- 5 stocks we like best from Williams-Sonoma
Like Nvidia Corp. NASDAQ:NVDA eMicrosoft NASDAQ:MSFT continue to drive the upward trajectory of the S&P 500 index despite notable declines from other major technology players and market leaders, such as Tesla NASDAQ:TSLA and Apple NASDAQ:AAPLInvestors may start to raise concerns about potential overvaluations and overbought conditions for a handful of stocks.
As the market approaches all-time highs, many stocks have experienced extreme overbought conditions, as indicated by the Relative Strength Index (RSI). The RSI measures the magnitude of recent price changes to evaluate whether a security is overbought or oversold during a specified period.
According to their RSI, DKS, WSM and SG are three stocks experiencing extreme overbought conditions. These stocks are among the most overbought in the United States, signaling potential preparation for a pullback as investors may rush to lock in profits.
So, could these three names be highly susceptible to a sharp retreat? Is it time to sell? Let’s take a closer look.
Following its latest earnings release, DKS shares rose more than 15% in the week as the company beat market expectations, reporting higher earnings and net sales in its fiscal fourth quarter. DKS on Thursday reported fiscal fourth-quarter non-GAAP earnings of $3.85 per diluted share, up from $2.93 a year earlier, beating analysts’ forecasts of $3.36. Additionally, net sales for the quarter ended Feb. 3 rose to $3.88 billion from $3.6 billion a year earlier, beating analysts’ expectations of $3.79 billion.
Despite the impressive earnings report, the stock is now in an extreme situation from a technical perspective. With the stock significantly extending from the uptrend and 200-day SMA, DKS has entered overbought territory. The RSI currently stands at 90.97, indicating one of the most overbought conditions possible, as an RSI above 90 suggests extreme overbought levels. This significant price increase, coupled with the high RSI value, suggests a potential pullback on the horizon.
Sweetgreen’s share price has increased significantly, with shares up close to 100% year to date. Despite this impressive performance, sentiment towards SG remains strongly bearish. Analysts expect a significant downside and over 10% of the float is positioned short.
This year’s substantial gains have been driven primarily by Sweetgreen’s earnings report dated February 29, 2024. Sweetgreen reported earnings per share of ($0.24) for the quarter, slightly missing the consensus estimate of ($0 .23) of $0.01. However, the company’s revenue for the quarter came in at $153 million, surpassing the consensus estimate of $152.04 million and marking a year-over-year increase of 29.0%.
Following the earnings release, SG saw a notable gap in its share price, leading to continued upward momentum, with shares rising more than 70% in the previous month alone. As a result, the stock has entered an extremely overbought scenario, reflected by its RSI of 87.
The upward surge caused the stock to significantly extend from its 200-day SMA, which is 50% below the last trading price, signaling that a parabolic move higher has occurred. Although the market has responded positively to Sweetgreen’s earnings performance, the exceptionally high RSI and sharp deviation from its moving average suggest that a potential correction may be imminent.
Williams-Sonoma continued to build on its impressive year-to-date gains, witnessing a rise of more than 15% this week following the release of its latest earnings report. On March 13, the specialty retailer reported quarterly earnings results that beat analysts’ projections. WSM reported $5.44 earnings per share for the quarter, beating the consensus estimate of $5.06 by $0.38.
However, despite the positive earnings performance, sentiment around WSM remains bearish. The RSI currently stands at 82, signaling an overbought condition. Furthermore, with 11% of the stock’s float positioned short, there is considerable skepticism among investors. Analysts have given the stock a Low rating, with their consensus price target calling for a substantial 34% downside. This pessimistic sentiment, coupled with the elevated RSI, suggests that WSM may face difficulty in sustaining its recent gains, potentially leading to a correction in the near future.
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