Caterpillar is among the most overbought stocks on Wall Street after a post-earnings surge. Here are the others

The third-quarter earnings season demonstrated robust performance, with 83% of S&P 500 companies exceeding earnings expectations, propelling major indices higher, notably the Nasdaq. Despite this broad strength, technical analysis using the 14-day Relative Strength Index (RSI) indicates potential reversals for specific stocks. Caterpillar and Cardinal Health emerged as significantly overbought, driven by strong earnings beats and substantial weekly gains, while Chipotle Mexican Grill and Fiserv became deeply oversold. Chipotle's shares plummeted after cutting its sales forecast due to softening consumer demand, and Fiserv experienced its worst-ever day following a drastically lowered earnings outlook and management changes, prompting analyst downgrades.

Analysis

The third-quarter earnings season has been broadly positive, with 83% of S&P 500 companies reporting upside earnings surprises and 79% beating revenue forecasts. This strong performance, particularly in AI-related sectors, propelled major indices higher, with the Nasdaq Composite gaining 2.24% for the week, while the S&P 500 and Dow Jones also rose.

Despite the overall positive market sentiment, technical analysis using the 14-day Relative Strength Index (RSI) indicates potential reversals for specific stocks. Caterpillar (CAT), with an RSI of 75, surged 12% after Q3 adjusted EPS of $4.95 and revenue of $17.64 billion significantly beat forecasts. Cardinal Health (CAH), with an RSI of 86 and a 19% weekly gain, also exceeded expectations with adjusted EPS of $2.55 and $64 billion in revenue, raising full-year guidance.

Conversely, Chipotle Mexican Grill (CMG) fell 21% with an RSI of 20 after cutting its full-year same-store sales forecast for the third consecutive quarter due to softening consumer demand. Fiserv (FI) plummeted 46% for the week, reaching an RSI of 13, following a drastic cut to its full-year earnings outlook from $10.15-$10.30 to $8.50-$8.60 and management changes, prompting analyst downgrades and a Morgan Stanley downgrade to Equal Weight.

Key Decisions for Investors

• Monitor overbought stocks like Caterpillar (CAT) and Cardinal Health (CAH) for potential short-term pullbacks, despite strong fundamental performance and positive analyst revisions.
• Evaluate deeply oversold stocks such as Chipotle Mexican Grill (CMG) and Fiserv (FI) for potential long-term value, but conduct thorough due diligence on their fundamental challenges, including weakened consumer demand and significantly lowered guidance.
• Consider the broader market's mixed signals, where strong aggregate earnings are driving indices, but technical indicators suggest caution on individual high-flyers and a deep dive into the underlying issues of underperforming companies.