These overbought stocks need to cool off as the market trades back at record highs

Following the S&P 500's record close, a CNBC Pro Screener analysis using the 14-day Relative Strength Index (RSI) identifies several stocks as potentially overbought or oversold. Tech and AI-beneficiary stocks, including Jabil (RSI 90.8), Microsoft (RSI 79.1), AMD, Micron, Western Digital, and Seagate, along with financials like JPMorgan and Goldman Sachs, are highlighted as overbought, suggesting potential near-term pullbacks. Conversely, food/beverage companies such as Molson Coors (RSI 18.3), Conagra Brands, Campbell's, and retailers like Ross Stores and Lululemon Athletica are among the most oversold, potentially poised for a bounce.

Analysis

Following the S&P 500's ascent to a new all-time high, technical indicators point to a significant divergence in individual stock conditions, signaling potential for near-term reversals. An analysis using the 14-day Relative Strength Index (RSI) reveals that technology and AI-related stocks are deeply in overbought territory. Jabil (JBL), an Apple supplier, exhibits an extreme RSI of 90.8 after a 5% weekly gain and an upgraded full-year outlook. Similarly, data storage firms Western Digital (WDC) and Seagate (STX) show high RSIs of 88.6 and 84.8 respectively, fueled by the AI-driven demand narrative that has propelled Seagate up 64% year-to-date. Even mega-cap names like Microsoft (MSFT), with an RSI of 79.1, are flagged as overbought, though its recent rally is fundamentally supported by analyst price target hikes from Morgan Stanley and Wells Fargo citing its generative AI leadership. Conversely, several consumer-facing stocks appear heavily oversold. Molson Coors (TAP) is the most prominent example with an RSI of 18.3, reflecting a 17% year-to-date decline and a recent downgrade from Bank of America due to market share losses. Retailer Lululemon (LULU), with an RSI of 29, is also in the oversold category after it cut its full-year earnings guidance, indicating that its technical weakness is rooted in fundamental concerns.

Key Decisions for Investors

• Given the extremely high RSI values in AI-related stocks like Jabil (90.8) and Western Digital (88.6), investors with substantial profits in these names should consider trimming positions to lock in gains ahead of a potential technical pullback.
• For Microsoft, while its RSI of 79.1 suggests an overbought condition, strong fundamental support from recent analyst upgrades on its AI prospects may warrant a hold-and-monitor approach rather than an outright sell.
• Contrarian investors could screen oversold names like Molson Coors (RSI 18.3) and Lululemon (RSI 29) for potential bounce-back opportunities, but must weigh the low technical readings against documented fundamental headwinds such as analyst downgrades and guidance cuts.
• In financials, the high RSI levels of approximately 80 for JPMorgan and Goldman Sachs suggest exposure to these names could be reduced in anticipation of a short-term cooling-off period.