4 Overbought Household Names, Time for a Pullback?

Key Points

• Amidst a market trading near all-time highs, overbought scenarios have emerged in several sectors and individual stocks.
• Many stocks display overbought signals, with significant extensions from their 200-day SMA and elevated RSI.
• GE, CMG, FDX, and GPS are among the most overbought, large-cap stocks at the moment.

Amidst the ongoing surge led by the semiconductor sector, the Artificial Intelligence revolution, and  Nvidia Corp. NASDAQ: NVDA, which is steering the S&P 500 to new heights, several overbought scenarios have developed in individual stocks. These scenarios may have sparked investor concerns over potential overvaluations, resulting in pullbacks and corrections in select stocks.

Numerous stocks have shown extreme overbought signals, with the market hovering near record levels, as the Relative Strength Index (RSI) indicates. This measure evaluates the recent magnitude of price changes to determine overbought or oversold conditions within a specified timeframe.

In light of this, stocks such as General Electric NYSE: GE, Chipotle Mexican Grill NYSE: CMG, FedEx NYSE: FDX, and The Gap NYSE: GPS have surfaced as overbought contenders within the U.S. market. This signals a potential predisposition to pullbacks, as investors may opt to lock in profits.

Meanwhile, the broader market continues to ascent to new highs, with the SPY ETF closing just 0.55% below its all-time peak last week and the QQQ tech sector ETF concluding the week merely 0.6% shy of its all-time high. So, while the overall market melts higher, could these four overbought stocks face imminent pullbacks? Let's delve deeper to find out.

Chipotle Mexican Grill NYSE: CMG

Chipotle Mexican Grill (CMG) is buoyed by bullish sentiment, marked by a moderate buy rating, low short interest, and projected earnings growth of 21.67%. Additionally, investor optimism remains high with a recent stock split announcement as shares approach $3000. However, despite the bullish fundamentals and sentiment, caution may be warranted as the stock has surged significantly, extending notably from its 200-day Simple Moving Average (SMA). Furthermore, with an overbought RSI of 77.29 and a consensus price target forecasting almost 13% downside, CMG appears vulnerable to a potential pullback in the near future.

The Gap NYSE: GPS

The Gap is experiencing overwhelming bearish sentiment, marked by a substantial short interest of 13.94% of the float, insider sells in the last quarter, and a consensus analyst price target forecasting over 30% downside for the stock. Despite this pessimistic outlook, GPS has recently surged, with year-to-date gains of 34.29% and over 200% over the previous year. 

Remarkably, despite its recent upward momentum, the stock's price-to-earnings ratio remains modest at just 20.96. However, the RSI now suggests that GPS has entered overbought territory, with the RSI at 82.80, signaling a potential pullback on the horizon.

General Electric NYSE: GE

General Electric exhibits bullish sentiment, supported by a moderate buy rating and projected earnings growth of 29.32%. However, despite the positive outlook, caution may be warranted. The stock has surged almost 40% year-to-date and nearly 100% over the previous year, leaving it significantly extended from key Simple Moving Averages (SMAs). Additionally, with an overbought RSI of 76.85, GE appears poised for a pullback in the near term.

FedEx NYSE: FDX

FedEx stands out as one of the most upgraded stocks, boasting a moderate buy rating from 25 analysts and a consensus price target forecasting nearly 6% higher despite already soaring over 30% in the previous year and almost 17% in the last month. 

The company's recent earnings report released on March 21st, 2024, was a significant catalyst for these gains. In this report, the shipping service provider exceeded expectations, reporting earnings per share of $3.86 for the quarter, surpassing analysts' consensus estimates by $0.37. However, despite the positive gains, the stock faces resistance near $285, compounded by an elevated RSI of 84.35, indicating overbought conditions and rendering it susceptible to a potential pullback.