Stocks Stretching Too Far? A Look at This Week's Most Overbought Plays
Markets felt the impact of geopolitical tensions and profit-taking this week as some stocks climbed aggressively, only to face potential pullbacks. In the wake of escalating conflict between Israel and Iran, global equities stumbled, sending investors toward traditional safe havens like gold and the U.S. dollar.
Market Reaction to Middle East Conflict
Friday’s trading session sharply reflected investor caution following Israel’s airstrikes on Iran — the largest since the 1980s Iran-Iraq war — which claimed the lives of multiple senior Iranian military figures. Iran retaliated with over 100 drone strikes targeting Israel. These developments unsettled markets, pushing the S&P 500 down by over 1% and dragging weekly returns into negative territory (-0.4%). The Nasdaq Composite and Dow Jones Industrial Average also closed the week lower, off by 0.6% and 1.3%, respectively.
Using RSI to Identify Overbought and Oversold Stocks
One way traders evaluate stock momentum is through the 14-day Relative Strength Index (RSI). Typically, an RSI above 70 suggests a stock may be overbought and ripe for a correction, while readings below 30 hint at oversold conditions, possibly signaling a bounce.
Oracle Leads as Most Overbought Stock
Oracle emerged as the standout overbought stock this week, boasting an eye-popping RSI of approximately 90.4. The cloud and software giant’s shares soared 24% over the week, highlighted by a near 8% surge on Friday alone, troublingly extending its bull run after a 13% jump the day before. The stock even hit record highs amid an earnings report that exceeded Wall Street expectations.
CEO Safra Catz projected that cloud infrastructure revenue could jump over 70% in fiscal 2026, signaling even stronger growth ahead. Despite the rally, analyst consensus still suggests a modest downside of about 5% from current levels, although targets may be reassessed following Oracle’s strong financial results.
Micron Technology Also Riding High
Memory chipmaker Micron Technology ranks among the overbought with an RSI around 85.1. Shares climbed more than 6% this past week, snapping a brief dip on Friday after a nine-day winning streak. Year-to-date, Micron boasts gains north of 37%.
Micron recently announced a massive investment of roughly $200 billion to expand semiconductor production across the U.S., a move expected to generate approximately 90,000 jobs. This bold commitment further fuels enthusiasm around the stock but also raises expectations for future performance.
Stocks Under Pressure: J.M. Smucker and PG&E Dip Deep
On the other end of the spectrum, J.M. Smucker is showing signs of being oversold with an RSI near 27. The company’s shares declined by 14% over the week after missing revenue estimates despite reporting earnings that beat forecasts. Investors are wary as Smucker’s full-year earnings guidance came in lighter than anticipated. Notably, the stock has now dropped in seven of the last eight weeks, even though analyst price targets imply more than 18% upside potential.
Meanwhile, California utility PG&E’s shares slid 13% this week, marking their fourth consecutive weekly decline and pushing its RSI down to roughly 20.6. The firm has endured a harsh year, plunging 32% compared to a modest gain of 1.6% for the broader S&P 500.
The Big Picture
- Geopolitical tensions can trigger swift market reactions, particularly moving investors into defensive assets.
- High RSI readings can warn of overheated stocks, underscoring the potential for short-term pullbacks.
- Strong earnings and ambitious expansions, like those from Oracle and Micron, can propel stocks but may also create volatility.
- Stocks showing low RSI readings like Smucker and PG&E might be undervalued, offering tantalizing opportunities if fundamentals improve.
As summer unfolds, market participants will keenly watch for further geopolitical developments and earnings updates that could reshape these momentum trends.
