3 Stocks Showing Constructive Pullbacks with Indexes at New Highs

Key Points

• MongoDB, Eli Lilly, and Adobe are among the leading stocks that are pulling back into potentially constructive patterns as major indexes become extended. 
• It's risky to buy extended stocks; it's frequently a better idea to track those with good earnings estimates and technical support.
• Exuberance about artificial intelligence has sent broad indexes soaring in a short amount of time. 

One of the most exciting things for an investor or trader is to look at tier account statement, or at the charts of what they own, and see a stock like Nvidia Corp. NASDAQ: NVDA or even the broader SPDR S&P 500 ETF Trust NYSEARCA: SPY or Invesco QQQ NASDAQ: QQQ rallying to new highs.

The S&P 500 rallied 29.41% in the past year, while the Nasdaq 100 rose 49.90% during that time. Those indicate that the market is extended and it wouldn’t be surprising to see a pullback, meaning that investors may be taking extra risk when making a purchase right now.

Entering Overbought Territory?

Extended indexes often indicate overbought conditions, where prices may have risen too far, too fast, increasing the risk of a subsequent correction. 

Also, extended indexes may reflect heightened market exuberance or speculative behavior, which could lead to increased volatility and sudden reversals. An obvious driver in this regard is artificial intelligence. The potential here is real, but there’s the possibility that investors have been piling in due to fear of missing out. 

However, there are several leading stocks forming potentially bullish formations as they pull back from highs, making them worth watching.

Those include MongoDB Inc. NASDAQ: MDB, Eli Lilly & Co. NYSE: LLY and Adobe Inc. NASDAQ: ADBE. 

AI Capabilities Driving MongoDB 

While it’s prudent to watch for AI overexuberance, database specialist MongoDB is an example of a stock that’s rallied due to AI-powered search capabilities. 

The MongoDB chart shows the stock pulling back in the past three weeks after notching a gain of 9.47% so far this year. The stock is finding support at its 50-day moving average, a constructive development, as it means institutional investors are likely taking some profits after a run-up, but not bailing out entirely.

The stock is currently in a buy zone, as it trades between its 50-day line and its previous high of $509.62. 

MongoDB reports earnings on March 7 after the closing bell. The company has guided toward earnings in a range between 17 cents and 20 cents per share, but any negative news has the potential to send the stock sharply lower; investors should always use caution in the days immediately before an earnings report.

Eli Lilly EPS Expected to Nearly Double 

Eli Lilly stock rallied to a new high of $794.47, buoyed by strong sales of weight-loss drug Zepbound and diabetes treatment Mounjaro

Analysts expect Lilly earnings to grow by 96% this year and by another 44% next year. 

In the most recent quarter, blockbuster Zepbound brought in revenue of $175.8 million, twice what analysts had forecast. Mounjaro sales totaled more than $5 billion in its first year on the market. 

The company also said tirzepatide, the basis of Zepbound and Mounjaro, has early clinical trial data indicating the potential to treat a type of liver disease that currently has no FDA-approved medications.

The Eli Lilly chart shows the stock closing in a fairly tight range in the past two weeks. That type of chart action is often a bullish indicator, signaling that investors are holding shares after a run-up, before resuming their buying. 

Adobe Rebounds off 200-Day Line

Abode stock fell 13% the week ending February 16, as investors became spooked after Microsoft Corp. NASDAQ: MSFT-backed OpenAI introduced Sora, an application that can generate sophisticated videos from commands. 

Sora, which is still being tested and is not yet available to the public, may be a significant rival to   Adobe's Creative Cloud suite of products, which includes video creation software. 

However, it’s a bullish sign that Adobe stock found support at its 200-day line, and began rallying after the company introduced a generative AI tool, AI Assistant for Acrobat and Reader, to create summaries of long documents. 

Analysts expect Adobe to report an earnings decline this year, but rebounding with double-digit growth in 2025. The decline is due to business users slashing expenses, but analysts see revenue bouncing back as the company rolls out more AI applications.

However, as the recent Sora-driven downturn illustrates, cheaper alternatives to Adobe’s suite of products may cut into revenue in the future.