Market Insights: Stocks and Indicators on the Rise and Fall
On Friday, stocks experienced a boost due to strong financial results, particularly in the artificial intelligence sector. However, a technical indicator suggests that some stocks may face declines soon. As of now, around 63% of S&P 500 companies have shared their latest earnings reports, with nearly 83% showcasing earnings surprises and 79% reporting sales that exceeded Wall Street predictions. This week, all three major stock indices showed gains, with the S&P 500 up by 0.71% and the Dow Jones Industrial Average increasing by 0.75%. The Nasdaq Composite Index stood out with a notable rise of 2.24% for the week.
Using a stock screening tool, CNBC Pro identified which stocks are deemed overbought based on the 14-day Relative Strength Index (RSI). Stocks with an RSI above 70 are often considered overbought, while those below 30 might be oversold. The accompanying table reveals stocks that have both an RSI above 70 and an increase of at least 5% for the week as of Friday morning.
Caterpillar was particularly noteworthy, boasting an RSI of 75. This construction and agricultural equipment manufacturer reported better-than-expected third-quarter numbers, with its shares climbing 12% on Wednesday alone and achieving the same percentage gain for the week. The company’s adjusted earnings per share were $17.64 billion, and profit reached $4.95. Analysts expected earnings of $4.59 and revenue of $16.77 billion. Following this strong earnings report, Bank of America reaffirmed its buy rating on Caterpillar and raised its price target from $594 to $650, suggesting a potential upside of about 13% from Friday’s closing price. They noted that the results indicate an upward trend in Caterpillar’s cyclical earnings compared to prior expectations.
Another stock making waves was Cardinal Health, which rose 19% this week and has an RSI of 86. Shares jumped 15% on Thursday after the pharmaceutical company exceeded earnings expectations in its first-quarter results. Cardinal’s adjusted earnings came in at $2.55 per share, beating the consensus of $2.18, alongside sales of $64 billion that topped the anticipated $59 billion. The company also updated its full-year profit forecast.
Conversely, among the most oversold stocks this week was Chipotle Mexican Grill. Currently down 21% for the week with an RSI of just 20, Chipotle’s stock fell 18% on Thursday when the company adjusted its full-year same-store sales forecast downward for the third consecutive quarter, attributing this decline to reduced spending from younger customers. Their third-quarter adjusted earnings were 29 cents per share, in line with expectations, but sales of $3 billion fell short of the $3.03 billion target.
Adam Reimer, CFO, acknowledged the challenges faced during the quarter and moving into October, despite some positive marketing results. As a result, analysts have lowered their price targets, with Citigroup’s John Tower revising his one-year target from $54 to $44, although he still believes the stock may see a 39% rise.
Fiserv also faced significant challenges this week, with fintech stocks soaring 46% yet struggling with an RSI of just 13. Shares experienced a drastic drop of 44% on Wednesday, which marked a record low for the company after it cut its profit outlook and announced management changes. Full-year adjusted earnings are now projected to be between $8.50 and $8.60, down from previous estimates of $10.15 to $10.30. The expected revenue growth has also been downgraded significantly. CEO Mike Lyons admitted that their current performance has not met expectations. In response, Morgan Stanley downgraded Fiserv’s stock rating from overweight to equal weight, suggesting the end of a long-standing period of double-digit earnings growth.
