Key points
- In a market near all-time highs, overbought scenarios have emerged in several sectors and individual stocks.
- Many stocks are showing overbought signals, with significant extensions from the 200-day SMA and a high RSI.
- GE, CMG, FDX, and GPS are among the most overbought large-cap stocks right now.
- 5 stocks we prefer to those of General Electric
Amid the ongoing surge led by the semiconductor industry, the artificial intelligence revolution and Nvidia Corp. NASDAQ:NVDA, which is driving the S&P 500 to new heights, several overbought scenarios have developed for individual stocks. These scenarios may have raised concerns among investors about potential overvaluations, resulting in pullbacks and corrections in selected stocks.
Numerous stocks showed signs of extreme overbought, with the market hovering near record levels, as indicated by the Relative Strength Index (RSI). This measure evaluates the recent magnitude of price changes to determine overbought or oversold conditions within a specified time frame.
In light of this, stocks such as General Electric NYSE:GEChipotle Mexican Grill New York Stock Exchange: CMGFedEx New York Stock Exchange: FDXand The Gap New York Stock Exchange: GPS have emerged as overbought contenders in the US market. This signals a potential predisposition for pullbacks, as investors may choose to lock in profits.
Meanwhile, the broader market continues to rise to new highs, with the SPY ETF closing just 0.55% below its all-time high from last week and the QQQ tech sector ETF closing ended the week just 0.6% off its all-time high. So, as the overall market melts higher, could these four overbought stocks face imminent pullbacks? Let’s dig deeper to find out.
Chipotle Mexican Grill (CMG) is supported by bullish sentiment, featuring a Moderate Buy rating, low short interest, and expected earnings growth of 21.67%. Additionally, investor optimism remains high with the recent announcement of a stock split as shares approach $3,000. However, despite the bullish fundamentals and sentiment, caution may be warranted as the stock has seen a significant rally, particularly extending from its 200-day simple moving average (SMA). Furthermore, with an overbought RSI of 77.29 and a consensus price target of nearly 13% downside, CMG appears vulnerable to a potential pullback in the near future.
The Gap is experiencing overwhelming bearish sentiment, characterized by substantial short interest of 13.94% of float, insider sales in the latest quarter, and an analyst consensus price target of over 30% downside for the title. Despite this pessimistic outlook, GPS has recently surged, with year-to-date gains of 34.29% and more than 200% from the previous year.
Surprisingly, despite its recent upward momentum, the stock’s P/E ratio remains modest at just 20.96. However, the RSI now suggests that GPS has entered overbought territory, with the RSI at 82.80, signaling a potential pullback on the horizon.
General Electric displays bullish sentiment, supported by a Moderate Buy rating and expected earnings growth of 29.32%. However, despite the positive outlook, caution may be warranted. The stock is up nearly 40% year-to-date and nearly 100% year-over-year, extending significantly from key simple moving averages (SMAs). Furthermore, with an overbought RSI of 76.85, GE appears poised for a pullback in the near term.
FedEx stands out as one of the most up-to-date stocks, boasting a Moderate Buy rating from 25 analysts and a consensus price target of nearly 6% upside despite having already risen more than 30% in the previous year and by almost 17% in the last month.
The company’s recent earnings report released on March 21, 2024 was a significant catalyst for these gains. In this report, the shipping services provider beat expectations, reporting earnings per share of $3.86 for the quarter, beating analysts’ consensus estimates of $0.37. However, despite the positive gains, the stock faces resistance near $285, compounded by a high RSI of 84.35, indicating overbought conditions and making it susceptible to a potential pullback.
Before you consider General Electric, you’ll want to hear this.
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