3 mid-caps with RSIs that scream oversold

Key Points

• AAR was at all-time highs just three weeks ago, and investors are already piling in. 
• LOPE was also at an all-time high before Christmas and offers an interesting short-term play.
• MPW is the riskiest of the bunch but offers the quickest trade and has the most reliable signal. 

It's starting to look more and more like the rally, which kicked off at the end of October, is set to continue into 2024. While stocks softened a little last week, the benchmark S&P 500 index is already ticking back to last month's high, with investor expectations now set on seeing it tag a fresh all-time high in the very near future.

With inflation continuing to look tamed and prospects of rate cuts from the Fed improving, there's definitely a risk-on atmosphere in the air. However, for all that, not all stocks are rallying right now. In fact, many companies are in the midst of a massive divergence from the broader market, and many have extreme Relative Strength Index (RSI) readings. 

The RSI is a widely used technical measure of how overbought or oversold a stock is. It considers the previous 14 days of trading and spits out a number between 0-100. Anything below 30 suggests the stock is oversold and due a bounce, while anything over 70 is the opposite and points to a stock being overbought and due a pullback. 

Given how strong equities are trading in general, with the S&P 500 continuing to rally hard this week, stocks with low RSIs should be of particular interest right now. Here are three worth considering for an imminent bounce. 

AAR Corp. NYSE: AIR 

First up is AAR, an Illinois-based aviation business. Right up to the week before Christmas, it was going well for them. The rally that had been underway since 2020 was well intact and set to power AAR stock forward into the new year. But then two bad things happened almost at once. They posted a bad revenue miss for their fiscal Q2 earnings and, at the same time, announced plans to acquire Triumph Group, Inc NYSE: TGI for $725 million in cash. 

Wall Street was not impressed by either, and AAR shares have hardly stopped selling since. At the lowest point last week, the stock was down a full 25%. Because of that vicious selloff, the stock's RSI plunged below 30. While the earnings miss and acquisition news were obviously two unwanted jolts to investors, it feels like a bit of an overreaction.  

Already, we've seen shares being snapped up off their lows, and with an RSI that's still just above 20, we're almost certainly going to see that bounce continue into next week. 

Grand Canyon Education, Inc NASDAQ: LOPE

Next up is Grand Canyon Education, Inc., which, like ARR, was enjoying a multi-month rally right up to Christmas week. But a 15% drop in the weeks since has both put the brakes on that and sent the stock's RSI down to 26. 

The catalysts for the drop were the news that the Federal Trade Commission is suing the company and that the Veterans Administration has ordered another risk-based audit into the company, just eight months after it failed the last one. 

This obviously isn't a stock to be thinking about for the long term just yet, but the good news for those of us on the sidelines is that it's starting to look like a short-term low might be in. After a couple of big red days, the trading range has tightened considerably, and shares are starting to consolidate around the $123 mark. If they can finish up on Wednesday, then there's every reason to think the bounce will continue into and through the weekend. 

Medical Properties Trust, Inc NYSE: MPW

The last mid-cap stock on our list is the outlier, mostly because it's been in a downtrend for some time now rather than having recently been at highs. MPW is a real estate investment trust (REIT) with a portfolio of over 400 properties, mostly hospitals. 

MPW stock is down 85% over the past two years. Interestingly, anytime its RSI has fallen below 30, the stock has bounced back hard before turning south again. This was the case last September, August and March, with shares seeing a double-digit percentage gain each time. 

Right now, MPW's RSI is 32 as the stock falls towards all-time lows, so investors should watch for it to continue falling and be ready to pounce for the short-term dead cat bounce.