Market Adjustments Following Recent Rally
Recent market trends indicate that some stocks may cool off after last week’s significant rally. The S&P 500 reached an all-time high, closing with impressive numbers, boosted by a decrease in investor anxiety over tariffs and trade issues. President Trump mentioned that negotiations between Canada and the U.S. are ongoing, but traders seemed to overlook this detail as all three major stock averages ended the week positively. Still, there are concerns that stocks which surged during the rally could experience pullbacks in the near future.
Using a CNBC Pro screener, I analyzed the stocks most potentially overbought and oversold based on the 14-day relative strength index (RSI). Generally, an RSI over 70 indicates stocks might be overbought and subject to short-term declines, while an RSI under 30 suggests stocks could be oversold and may bounce back soon. Some key groups include tech stocks and those benefiting from artificial intelligence, which are among the most overbought following the recent surge.
Jabil, a manufacturer of electronic components for Apple, holds the highest RSI this week at 90.8. Its shares climbed over 5%, reaching a fresh 52-week peak last Friday. Earlier in the month, Jabil revised its full-year projections upward for core and net revenue per share. Other notable stocks like Advanced Micro Devices and Micron also show elevated RSIs, signaling potential dips as well. For instance, Microsoft notched a 4% increase this week and has an RSI of 79.1, with Morgan Stanley raising its price target significantly, indicating optimism about its investments in AI.
Advanced Micro Devices experienced a 12% rise this week, supporting the S&P 500’s recovery since its lows in April. Data storage companies like Western Digital and Seagate have high RSIs of 88.6 and 84.8, respectively, riding the AI wave; Seagate gained 8% this week, marking a nearly 64% year-to-date increase, driven by storage demand and growth expectations in data centers.
In contrast, certain stocks appeared to be under significant selling pressure, including Molson Coors, Conagra Brands, and Campbell, with Molson Coors showing the lowest RSI at 18.3. Its shares fell by 1.3% this week and have dropped over 17% this year. Bank of America has downgraded Molson Coors from a buy to neutral, citing losses in market share within the U.S. beer sector and expressing concerns over stock valuation.
Other struggling companies include Roth Stores and Lululemon Athletica, with RSIs at 24.3 and 29, respectively. Lululemon had exceeded first-quarter revenue forecasts earlier this month but has subsequently lowered its annual revenue guidance, adding to the uncertainty.
