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Most Overbought and Oversold Stocks in the S&P 500
Overbought Stocks
Despite the S&P 500's decline this week, some stocks remain deep in overbought territory. The S&P 500 lost over 1% for the week, breaking a five-week winning streak. A look at the relative strength index of many stocks in the index shows investors may want to trim their holdings in some other names as well. A stock is considered overbought if its 14-day RSI goes above 70, signaling investors should consider easing their exposure.
Johnson & Johnson
Johnson & Johnson is the most overbought stock in the index with a 14-day RSI of nearly 92. While the stock rose about 1% this week, most analysts aren't optimistic on the shares, with only 26% rating them a buy. However, Morgan Stanley's Terence Flynn noted that its immunology drug JNJ-2113 could "be an underappreciated pipeline driver for JNJ and under a bull case scenario become a $5bn+ drug at peak for the company."
Airlines Delta and Southwest, Cruise Operators Royal Caribbean and Carnival
Airlines Delta and Southwest along with cruise operators Royal Caribbean and Carnival are also overbought with RSIs of more than 83, though analyst consensus for each name varies. While most analysts have a buy rating on Delta, more than half of those covering Royal Caribbean have buy ratings on the company. However, only 4 in 10 analysts rate Southwest and Carnival as buy.
Oversold Stocks
Some stocks are deep in oversold territory, meaning they may be due for a bounce. Akamai Technologies is the most oversold stock on Wall Street, with an RSI of just under 12. The cybersecurity name lost more than 3% this week and is down nearly 4% for the month. While only one-third of those covering Akamai rate it a buy, analysts are bullish on the three solar names. Solar stocks Enphase Energy, SolarEdge Technologies, and First Solar also made the cut, with 14-day RSIs of 21.8, 16.7, and 20.9, respectively. All three stocks have gotten crushed in the second quarter, losing more than 15% each. Enphase and SolarEdge are also down for the year. However, more than 60% of those covering them have buy ratings on the brands.
The S&P 500 decline may not sound like good news, but for new businesses, it can provide opportunities to invest in oversold stocks. While some stocks like Johnson & Johnson and airlines like Delta and Southwest are overbought with high RSIs, meaning they may be due for a pullback, others like Akamai Technologies and the three solar stocks mentioned are oversold. These oversold stocks are trading at historic lows, representing great value for businesses looking to invest at a discount.
While it may be tempting to put all your money into the overbought stocks, it's also important to take a long-term view and consider the potential value of oversold stocks. With a long-term perspective, it's easier to see which stocks have growth potential and which are in a temporary decline. For startups with limited capital, it's essential to invest prudently, and the oversold stocks present an opportunity to do so. By selecting solid companies with strong growth potential, businesses can secure their investments and ride out short-term market volatility with more confidence.
