As Nvidia Corp. NASDAQ: NVDA and Microsoft NASDAQ: MSFT continue to spearhead the upward trajectory of the S&P 500 amidst notable retractions from other major tech players and market leaders, such as Tesla NASDAQ: TSLA and Apple NASDAQ: AAPL, investors might begin raising questions regarding the potential overvaluations and overbought conditions in a handful of names.
As the market hovers near all-time highs, many stocks have registered extreme overbought conditions, as the Relative Strength Index (RSI) indicates. The RSI measures the magnitude of recent price changes to evaluate overbought or oversold conditions in a stock during a specified period.
According to their RSI, DKS, WSM, and SG are three stocks registering extreme overbought conditions. These stocks are among the most overbought in the U.S., signaling a potential readiness for a pullback as investors might rush to secure profits.
So, could these three names be highly susceptible to a sharp pullback? Is it time to sell? Let’s take a closer look.
Following its latest earnings release, shares of DKS surged over 15% on the week after the company surpassed market expectations, reporting higher earnings and net sales in fiscal Q4. DKS reported fiscal Q4 non-GAAP earnings Thursday of $3.85 per diluted share, compared with $2.93 a year earlier, exceeding analysts' forecasts of $3.36. Additionally, net sales for the quarter ended Feb. 3 rose to $3.88 billion from $3.6 billion a year earlier, surpassing analysts' expectations of $3.79 billion.
Despite the impressive earnings report, the stock now finds itself in an extreme situation from a technical standpoint. With shares significantly extending from their uptrend and 200-day SMA, DKS has entered overbought territory. The RSI currently stands at 90.97, indicating one of the most overbought conditions possible, as an RSI over 90 suggests extreme overbought levels. This significant surge in price, coupled with the high RSI value, suggests a potential pullback on the horizon.
Sweetgreen's stock price has surged significantly, with shares up close to 100% year-to-date. Despite this impressive performance, sentiment surrounding SG remains highly bearish. Analysts forecast a significant downside, and over 10% of the float is positioned short.
This year's substantial gains were mainly driven by Sweetgreen's earnings report on February 29th, 2024. Sweetgreen reported earnings per share of ($0.24) for the quarter, slightly missing the consensus estimate of ($0.23) by $0.01. However, the firm's revenue for the quarter stood at $153 million, surpassing the consensus estimate of $152.04 million and marking a 29.0% increase year over year.
Following the earnings release, SG experienced a notable gap in its stock price, leading to consistent upward momentum, with shares climbing over 70% in the previous month alone. As a result, the stock has entered an extremely overbought scenario, reflected by its RSI of 87.
The surge higher has left the stock severely extended from its 200-day SMA, which is 50% below the last trade price, signaling a parabolic upward move has occurred. While the market has responded positively to Sweetgreen's earnings performance, the exceptionally high RSI and the steep deviation from its moving average suggest a potential correction may be imminent.
Williams-Sonoma has continued to bolster its impressive year-to-date gains, witnessing a surge of over 15% this week following the release of its latest earnings report. On March 13, the specialty retailer unveiled quarterly earnings results that outpaced analysts' projections. WSM reported earnings per share of $5.44 for the quarter, surpassing the consensus estimate of $5.06 by $0.38.
However, despite the upbeat earnings performance, sentiment surrounding WSM remains bearish. The RSI currently stands at 82, signaling an overbought condition. Additionally, with 11% of the stock's float positioned short, there exists significant skepticism among investors. Analysts have assigned the stock a reduce rating, with their consensus price target projecting a substantial downside of 34%. This pessimistic sentiment, coupled with the elevated RSI, suggests that WSM may face headwinds in sustaining its recent gains, potentially leading to a correction in the near future
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