Recent technical metrics suggest that stocks like Northrop Grumman and Advanced Micro Devices may be overbought following this week’s market surge. In fact, three major US indices saw significant gains that contributed to a wave of positive earnings reports and trading activity. The S&P 500 set five records this week alone, marking a 1.5% increase for the year after a total of 14 new highs. Meanwhile, the 30-share Dow gained about 1.3% this week, with the Nasdaq composite rising by 1%. However, the stocks that surged during this rally could face some risks ahead.
Using the CNBC Pro Stock Screener, I found several stocks that are either overbought or oversold based on the 14-day relative strength index (RSI). An RSI above 70 typically indicates overbought conditions, suggesting a potential decline, while values below 30 indicate oversold conditions needing a rebound. Among the notable gainers this week, chipmaker Advanced Micro Devices topped the list with an RSI nearing 77, having increased by 6%. Earlier, the company announced plans to restart shipments of its MI308 artificial intelligence chips to China once they secure approval from the US Department of Commerce.
Defense and aerospace giant Northrop Grumman saw a 9.8% rise this week, placing it in the overbought category with an RSI around 73. CEO Kathy Warden mentioned during a call with analysts that revenue from the B-21 stealth bomber could, “in the future,” exceed 10% of total earnings. Other stocks showing high RSI values that might face declines include Block, Newmont, and Ge Vernova. Ge Vernova’s shares jumped around 12% this week, bolstered by strong second-quarter results, prompting analysts from firms like Citi and Bank of America to raise their price targets.
Conversely, International Business Machines (IBM), Texas Instruments, and Philip Morris International are among the stocks facing challenges indicated by high RSI values. IBM shares dipped over 9% this week as tech companies reported disappointing second-quarter software revenue, even though they overshadowed analyst expectations, according to LSEG. The stock currently has an RSI of about 26. Similarly, tobacco company Philip Morris struggled after missing second-quarter revenue forecasts, and Wall Street reacted negatively to their Zyn nicotine shipment numbers, leading to a nearly 10% drop and an RSI around 29.
