Top 2 Tech Stocks You May Want To Dump This Quarter

Two information technology stocks, Maxlinear (MXL) and Pixelworks (PXLW), are signaling potential caution for momentum investors due to significantly overbought Relative Strength Index (RSI) values. Maxlinear, despite reporting better-than-expected Q2 sales and strong Q3 guidance, carries an RSI of 78.2 and saw its shares fall 0.8% on Wednesday after a 13% monthly gain. Pixelworks, which gained 65% over the past month and jumped 20.8% on Wednesday, exhibits an even higher RSI of 87.8, suggesting potential short-term reversal risk despite recent strong price action.

Analysis

Two information technology stocks, Maxlinear Inc (MXL) and Pixelworks Inc (PXLW), are exhibiting technical signals that warrant caution for momentum investors. Both companies show significantly overbought conditions, with Relative Strength Index (RSI) values well above the 70 threshold. For Maxlinear, the RSI of 78.2 follows a 13% monthly stock gain, which is fundamentally supported by better-than-expected Q2 sales, a return to non-GAAP profitability, and strong Q3 guidance. Despite these positive fundamentals and high Edge Stock Ratings for momentum (91.92) and value (93.51), the stock experienced a minor 0.8% decline, suggesting the overbought condition may be starting to weigh on investor sentiment. Pixelworks presents a more extreme case with an RSI of 87.8 after a 65% gain over the past month, including a 20.8% surge in the most recent session. This dramatic price appreciation, which has brought the stock to its 52-week high, appears less anchored in recent fundamental news, as the latest corporate update cited was an in-line loss for Q1 reported back on May 13. The divergence between strong fundamental news for MXL and the more speculative momentum for PXLW, coupled with high RSI for both, indicates an elevated risk of a short-term price correction across these names.

Key Decisions for Investors

• Given the overbought RSI levels for both MXL and PXLW, investors holding these positions should consider trimming exposure or implementing tight stop-loss orders to protect recent profits from a potential technical reversal.
• For Maxlinear (MXL), the strong underlying fundamentals may warrant a hold, but investors should monitor for further signs of price consolidation as the overbought signal could temper near-term upside.
• The extremely high RSI of 87.8 and the 65% monthly rally in Pixelworks (PXLW) suggest a high probability of a near-term pullback, making it a candidate for profit-taking for existing holders.
• Traders looking to initiate new long positions should exercise caution and may find more favorable entry points after a period of price consolidation allows the RSI for both stocks to retreat from overbought territory.