Stocks That Could Take a Dip After the Market's Record Gains

Stocks that surged during this week’s strong market rally may now be in overbought territory, according to a widely followed technical measure—the Relative Strength Index (RSI). After several days of robust gains across U.S. markets, some stocks are showing signs of being overheated, which could indicate a pullback is on the horizon.

‍

This past week, the three major U.S. indexes made significant advances, buoyed by upbeat earnings and promising updates on trade negotiations. The S&P 500 rose 1.5%, marking five record highs over the course of the week and bringing the year’s total to 14 record closes. The Dow Jones Industrial Average climbed about 1.3%, and the tech-heavy Nasdaq Composite added 1%.

‍

While the broad market was lifted by overall optimism, certain individual stocks performed exceptionally well, potentially reaching unsustainable levels in the short term. By using the CNBC Pro screener and focusing on the 14-day RSI—a momentum oscillator that measures the speed and change of price movements—analysts identified which stocks could be vulnerable. Stocks with an RSI over 70 are considered overbought and may be primed for a decline, while those with an RSI under 30 are viewed as oversold and could be due for a rebound.

‍

Several stocks that gained at least 5% this week now fall into the overbought category. These include prominent names like Advanced Micro Devices (AMD) and Northrop Grumman (NOC).

‍

AMD, a leading semiconductor company, saw its shares rise 6% during the week, pushing its RSI close to 77. The gains came as the company announced that it is set to resume shipments of its MI308 artificial intelligence chips to China, pending regulatory approval from the U.S. Commerce Department. While the news was well-received, the stock's sharp rise now places it in technically overbought territory.

‍

Northrop Grumman, the aerospace and defense contractor, climbed nearly 10% after posting a second-quarter revenue beat and raising its full-year guidance. CEO Kathy Warden noted that the B-21 stealth bomber could eventually contribute more than 10% of the company's total revenue. Investors responded positively, but the resulting RSI of about 73 suggests the stock may be overextended.

‍

Other stocks that appear overbought after this week’s rally include:

• GE Vernova (GEV), up 12.2% with an RSI of 79.82, after strong earnings and analyst upgrades.
• CoStar Group (CSGP), up 9.8% with an RSI of 79.44.
• TEL Connectivity (TEL), up 16.3% with an RSI of 87.08.
• Invesco (IVZ), up 9.5%, showing the highest RSI of the group at 87.33.
• Blackstone (BX), Allegion (ALLE), Globe Life (GL), and Resmed (RMD) also made the list, all rising over 5% for the week.

‍

These stocks have performed well recently, but their elevated RSI levels imply caution may be warranted for short-term investors. A high RSI doesn’t guarantee a price drop but often precedes periods of consolidation or pullback.

‍

On the opposite end of the spectrum, several stocks were labeled as oversold, meaning they may have been beaten down too far and could be poised for a rebound. Among the most oversold were International Business Machines (IBM), Texas Instruments (TXN), and Philip Morris International (PM).

‍

IBM dropped over 9% for the week after its software segment underwhelmed investors, despite the company exceeding total revenue and earnings estimates. Its RSI fell to around 26.

‍

Philip Morris also disappointed Wall Street with a weak quarterly report, particularly in its Zyn nicotine pouch segment. The stock tumbled nearly 10%, and its RSI slid to 29, placing it just inside the oversold category.

‍

Texas Instruments posted a similar story, declining 14.6% as investors reacted negatively to earnings that fell short of expectations. Its RSI now hovers just under 23.

‍

Other notable oversold names include:

• Charter Communications (CHTR), down 18.9% with an RSI of 23.
• Fiserv (FI), falling 14.3% with an RSI near 20.
• Molina Healthcare (MOH) and Universal Health Services (UHS), both suffering mid-to-high single-digit losses and low RSI readings.

‍

These companies may offer opportunities for bargain hunters looking to buy the dip, assuming underlying fundamentals remain intact. However, investors are advised to consider broader market conditions and company-specific news before making any decisions based purely on technical indicators.

‍

In summary, while this week’s market surge has brought many stocks to new highs, several now appear technically overbought and could see short-term corrections. At the same time, a handful of underperformers might be positioned for a bounce. Whether buying the dip or trimming profits, the current landscape calls for a careful look at both momentum indicators and fundamentals.

‍