Market Update: Potential Short-Term Risks for Some Stocks
Some widely recognized software and energy stocks might face challenges soon, based on a popular technical indicator. Despite a few surprising winners, major US stock indexes had a somewhat underwhelming November. Notably, high valuations and skepticism about the profitability of substantial artificial intelligence investments weighed heavily on leading tech stocks. The Nasdaq Composite Index dropped 1.5% over the month, its first decline in seven months, whereas the S&P 500 and Dow 30 saw slight increases.
Using CNBC Pro’s stock screening tool, we identified companies in the S&P 500 that saw gains this week, displaying a 14-day Relative Strength Index (RSI) above 70, which signals they are technically overbought and may lead to short-term negative sentiment. Among those companies are Alphabet, Google’s parent company, and retailer Ralph Lauren, both marked as overbought by this metric.
This week, Alphabet stood out as a notable stock, currently identified as overbought with a 14-day RSI of 72.2. Its shares surged after it showcased its Gemini 3 AI model and advancements in its Tensor Processing Units chip operations. In light of the tepid launch of ChatGPT-5 back in August, investors have gravitated towards Alphabet amid ongoing uncertainties regarding OpenAI’s funding strategy and the comparative performance of ChatGPT against Gemini. Analyst Ben Reitzes from Melius Research noted that some investors are concerned about Alphabet’s potential to dominate the AI sector due to significant enhancements in the Gemini AI model and the advantages of its custom TPU chips. He emphasized that Gemini 3 could bolster a profitable API business, potentially outperforming GOOGL in various applications, while its quick integration into AI search capabilities may help alleviate worries about its core operations.
Merck also emerged as overbought, with an RSI of 80. The pharmaceutical leader exceeded expectations in its third-quarter results in late October, attributed largely to strong demand for its cancer drug, Keytruda. Additionally, Merck recently lowered its profit outlook to account for decreases in certain costs. Moreover, the company announced plans on November 14 to acquire Sidara Therapeutics for approximately $9.2 billion to gain a new influenza treatment. Following a notable uptick in its stock price, which saw a rise of over 21% in November, market watchers suggest a potential short-term pullback. LSEG reports a consensus price target of $102.43, indicating a possible downside of about 2% from current levels.
Ralph Lauren and Las Vegas Sands are also flagged as overbought, with RSIs of 71 and 79.8, respectively. Ralph Lauren’s stock increased by 8% this week, totaling around 15.5% in gains for November, thanks to strong second-quarter outcomes. In response, analysts from TD Cowen and Telsey Advisory Group raised their price targets for the brand earlier this month.
