Are Software Companies Due for a Pullback After the Market’s Rally?
The stock market has been on a roaring rally this week, driven by President-elect Donald Trump’s election victory and strong quarterly earnings reports. Major U.S. indexes are seeing significant gains, with the S & P 500 up roughly 5%, the Dow Jones Industrial Average higher by 5.3%, and the Nasdaq jumping 6.4% so far in November. Investors are excited about the potential for less government regulation, more deal-making, and proposed tax cuts under a second Trump administration.
However, amidst all the bullish moves and renewed market enthusiasm, some companies could be due for a pullback. One popular market yardstick to consider is the 14-day relative strength index (RSI), a momentum indicator used in technical analysis. Stocks with an RSI above 70 are generally considered overbought, signaling a potential pullback ahead.
One example of a company that may be overbought is Take-Two Interactive Software. The video game maker saw its shares rise more than 8% this week following better-than-expected quarterly results. Analysts are optimistic about Take-Two’s future, with Morgan Stanley increasing its price target to $200. However, Take-Two’s RSI is nearly 84.8, suggesting the stock may have risen too fast and could be vulnerable to a downturn.
Another software company that could be due for a pullback is Electronic Arts, with an RSI of about 85.2. The stock has seen a 5% increase this month, driven by strong second-quarter net bookings and a record-breaking video game launch. While analysts are positive about Electronic Arts’ performance, the high RSI indicates the stock may be overbought.
Beyond software companies, other stocks that might be ripe for a pullback include Dayforce, Paycom Software, and pharmaceutical giants like Incyte and Gilead Sciences. On the flip side, some stocks, like General Mills, Coca-Cola, and Keurig Dr Pepper, are considered oversold and could see a bounce back in the future.
At Extreme Investor Network, we keep a close eye on market trends and provide valuable insights to help you make informed investment decisions. Stay tuned for more updates on potential investment opportunities and market trends.