This week, semiconductor stocks have been notably overbought as investors continue to show enthusiasm for the sector. Both the S&P 500 and the Nasdaq Composite Index posted gains, climbing by 0.55% and 1.50%, respectively. This uptick can largely be attributed to the rally in semiconductor stocks and a growing optimism regarding potential peace talks between the United States and Iran. For instance, the iShares Semiconductor ETF (SOXX) achieved its 18th consecutive day of positive performance on Friday, contributing to the overall strength of semiconductor stocks, which significantly populated this week’s overbought list.
To identify these overbought stocks, CNBC Pro employed a stock screener based on the 14-day relative strength index (RSI). A stock is deemed overbought with an RSI above 70, suggesting a potential pullback, while an RSI below 30 indicates possible oversold conditions. Among the overbought stocks were well-known names like Advanced Micro Devices, ON Semiconductor, NXP Semiconductors, Microchip Technology, Texas Instruments, and Analog Devices.
Texas Instruments saw its shares surge after reporting robust first-quarter profits and sales, along with a positive outlook, driven by high demand for analog chips crucial for AI data centers. Interestingly, AMD stock also experienced a significant rise, even without any recent news impacting the company directly. Meanwhile, Intel’s latest earnings report had highlighted considerable demand for central processing units (CPUs), bolstering confidence in other major CPU manufacturers, including AMD.
Cameron Dawson, the chief investment officer at NewEdge Wealth, pointed out that market leadership seems increasingly focused. “The market’s breadth is narrowing — it used to be that the ‘magnificent seven’ drove things, but now it’s really just been the semiconductors lately,” he commented during a Thursday segment on CNBC’s “Closing Bell: Overtime.”
Aside from semiconductors, the week’s most overbought list also featured United Rentals, which had an RSI of 84 following an upgrade to its full-year revenue forecast. The company expressed expectations for increased momentum as it enters its peak season. West Pharmaceutical Services also had a good week, reporting adjusted earnings of $844.9 million, exceeding estimates and finishing with an RSI of 82.7.
Conversely, several aerospace and defense stocks found themselves oversold this week. Companies such as Northrop Grumman, Lockheed Martin, RTX, and L3Harris Technologies faced declines as tensions in the Middle East appeared to be easing. There are concerns among investors that defense spending might have peaked, particularly with the upcoming midterm elections possibly shifting Congress.
President Trump announced an extension of the ceasefire agreement between Israel and Lebanon, following talks held with U.S. officials. Additionally, reports indicated that Iranian Foreign Minister Abbas Araghchi was set to meet with Pakistani mediators regarding a potential second round of peace discussions. Notably, the stocks of Tractor Supply also made the oversold list, ending with an RSI of 21.2, as it faced a steep decline after disappointing first-quarter results, which revealed a slump in non-essential spending attributed to rising gas prices and economic uncertainty. Many analysts on Wall Street have since lowered their price targets for the company.
