The recent global rout in the stock market has undoubtedly created a period of volatility, causing major indexes to tumble. However, despite the initial downturn, there seems to be a glimmer of hope for certain stocks to rebound. The key question that arises is whether investors should seize this opportunity for potential gains or exercise caution amidst uncertain market conditions.
In the quest to identify potential opportunities, CNBC Pro conducted a screening process for the most overbought and oversold stocks based on their 14-day relative strength index (RSI). Stocks with an RSI above 70 are considered overbought, indicating a risk of a pullback, while those below 30 are deemed oversold, presenting a potential buying opportunity.
Disney, despite having a 14-day RSI of 27.7, stands out as a candidate for a bounce back. The entertainment titan saw a 4% decline in its shares during the week, despite surpassing Wall Street’s third-quarter estimates. The company’s theme parks business in the U.S. experienced a downturn due to weakened consumer demand, prompting cautious projections from Disney executives.
Another notable candidate in the oversold category is Take-Two Interactive Software, with an RSI indicating a significant oversold position. Despite a modest uptick in share prices for the week, the stock has endured a substantial decline of 10% throughout the year. The video game maker’s reiteration of its annual forecast for bookings and earnings provides some semblance of stability amidst market turbulence.
Other stocks such as Super Micro Computer and Ulta Beauty have also been identified as oversold options, suggesting a possible recovery in the near future.
Conversely, there are concerns surrounding stocks that have experienced significant surges and could potentially be overextended. Kellanova, with the highest RSI in the group at 87.2, surged by 19% within a week, driven by rumors of a takeover by Mars. The stock’s rapid ascent raises questions about sustainability and potential corrections in the future.
Axon Enterprise, the maker of Taser devices, exhibited substantial gains following an impressive second-quarter earnings report. Despite receiving a consensus buy rating from analysts, the stock’s RSI of 75.3 signals a potential overextension. The company’s optimistic revenue guidance for the year adds to the bullish sentiment but also raises concerns about unrealistic growth expectations.
Lockheed Martin and Northrop Grumman, both boasting high RSIs, have also attracted attention for their significant price appreciation. While the former received an upgrade to “outperform” status, the latter remains in a favorable position with a solid performance year-to-date.
The current stock market landscape presents a mixed bag of opportunities and risks. Identifying overbought and oversold stocks can help investors navigate through volatile conditions and make informed decisions. While some stocks may present potential for a rebound, caution is advised when dealing with overextended stocks that could be ripe for a correction. As the market continues to fluctuate, staying vigilant and conducting thorough analysis remain crucial in navigating these uncertain times.