Wall Street Sees Strong Gains in May Amid Eased Trade Tensions
The stock market experienced a significant upswing in May, with major indices posting robust gains. The S&P 500 climbed over 6%, marking its largest monthly increase since late 2023, while the Nasdaq Composite surged nearly 9.6% and the Dow Jones Industrial Average rose close to 4%.
This market momentum was largely driven by easing trade tensions as the United States and China paused aggressive tariff escalations. Additionally, a new trade agreement between the U.S. and the United Kingdom fueled optimism about potential future deals.
Investor Sentiment Remains Cautious Heading Into June
Despite May's strong gains, market watchers remain cautious moving into June. Daily tariff headlines and uncertainty over ongoing U.S.-China trade negotiations have sustained volatility and investor unease.
Identifying Overbought and Oversold Stocks Using RSI
To identify stocks potentially due for price corrections or rebounds, analysts examined the 14-day Relative Strength Index (RSI), a momentum indicator used widely in technical analysis. The RSI scale ranges from 0 to 100, with values above 70 suggesting a stock might be overbought and vulnerable to a near-term pullback, while values below 30 indicate a stock could be oversold and poised for a short-term rebound.
Leading Overbought Stocks After May’s Rally
- Johnson Controls: Posting an RSI of 86.9, Johnson Controls led the overbought list. The company, specializing in commercial HVAC systems, climbed 20.8% in May and is up more than 28% year-to-date. The surge followed fiscal second-quarter earnings and revenue exceeding estimates, along with an upgrade from Deutsche Bank citing operational improvements under new leadership.
- Broadcom: The semiconductor giant surged 26% in May and registered an RSI of 79.3. With second-quarter earnings anticipated on June 11, Broadcom's valuation may be stretched, as analyst price targets hover slightly below current trading levels.
- GE Aerospace and Intuit: Both stocks also appeared overbought, with May price gains of 22% and 20%, respectively. These shares have shown strong momentum amid recent market recoveries.
Notable Oversold Stocks Indicating Potential Rebound
- UnitedHealth: The stock registered a deeply oversold RSI near 20, dropping 26.6% in May following a 21.4% decline in April.
- Cooper Companies: This medical device and contact lens manufacturer fell 16.4% in May, with RSI at 24.5. The decline followed a lowered full-year organic growth forecast despite better-than-expected second-quarter results.
- Copart: Also oversold with an RSI of 20.9, Copart’s shares have faced downward pressure recently.
Market Outlook
While May’s rally reflected improved trade relations and corporate performance, investors are advised to monitor stocks with high RSI values closely, as these may be susceptible to profit-taking. Meanwhile, oversold stocks could offer buying opportunities if they demonstrate strong fundamentals and upcoming catalysts.
