The S & P 500 closed the week with a modest gain, but concerns are rising about the possibility of a pullback in the market. The use of artificial intelligence to bolster trading has led to a rally that may now be showing signs of weakness. The week saw some well-known AI stocks, such as Nvidia, experience a decline, raising alarms about potential overextension in the tech-dominated market.
CNBC Pro used a stock screener tool to identify overbought and oversold stocks on Wall Street, using the 14-day relative strength index (RSI) as a metric. Stocks with a 14-day RSI above 70 are considered overbought and may be due for a pullback, while those below 30 are considered oversold and may be poised for a rebound.
Among the most overbought stocks identified was Microsoft, with an RSI of 74. This tech giant has been a beneficiary of artificial intelligence, with analysts praising its AI investments. Despite a 20% increase in share value this year, there is still a potential 9% upside according to consensus price targets.
Corning, a manufacturer of specialty glass, has seen a 31% surge in 2024. However, with an RSI reading of 74, the stock may be due for a decline. Consensus price targets suggest a potential 4% drop in share value. Analyst Meta Marshall of Morgan Stanley has adjusted her rating on Corning, reflecting a more balanced risk-reward perspective.
American Airlines was one of the most oversold stocks, with an RSI of 29. The airline has experienced a significant decline this year, with a 19% drop in share value. Despite setbacks including a guidance cut and management changes, analyst price targets suggest a positive outlook with over 37% upside potential.
CoStar Group, a real estate data firm, also fell into the oversold category with an RSI of about 19. Despite slipping 15% in 2024, analyst consensus implies a potential rally of 42%. Analyst Nicholas Johnson of JMP Securities maintained a market outperform rating on CoStar, citing positive interactions with the company’s investor relations team.
As the market continues to navigate the impact of artificial intelligence and other factors, investors should carefully consider the potential risks and rewards associated with overbought and oversold stocks. While certain stocks may be showing signs of overextension, others may present opportunities for growth. It is crucial for investors to conduct their due diligence and analysis before making investment decisions in this dynamic market environment.