Alphabet is among the most overbought stocks on Wall Street. Here are the others

Alphabet Leads List of Overbought Stocks, Signaling Caution for Investors This Quarter

Imagine you’re watching a group of runners in a race. Some are sprinting way ahead, but you know they might get tired soon and slow down. That’s what’s happening with a few big stocks right now—they’ve been running fast, but they could soon run out of steam.

Why This Matters for Investors

Recently, some well-known tech and energy companies have seen their stock prices rise quickly. But just like runners who go too fast, these stocks might be set for a break. For investors, this can mean more risk if you buy in now, or a possible chance to buy later at a better price.

What’s Happening Now

The Nasdaq Composite, which tracks lots of tech companies, dropped 1.5% in November. This ended a seven-month winning streak. The S&P 500 and Dow Jones did a little better, but gains were small. Some big names—like Alphabet (Google’s parent), Merck, and Ralph Lauren—have stocks that are now considered “overbought.”

“Overbought” means their prices have gone up a lot in a short time. Experts use something called the Relative Strength Index (RSI) to spot this. An RSI above 70 suggests a stock might be too popular right now and could drop soon. For example:

  • Alphabet (Google): RSI of 72.2. Investors are excited about its new AI model, Gemini 3, and its chip business. But some worry the price has gone up too fast.
  • Merck: RSI of 80. The company had strong earnings and a big new drug deal, but analysts think the price could dip a bit soon.
  • Ralph Lauren: RSI of 71. The stock jumped after good sales results, but it might cool off.

Bull Case: Reasons for Optimism

  • Strong performance and new products, like Alphabet’s AI upgrades, have driven growth.
  • Merck’s big drug deal could help it grow even more in the future.
  • Retailers like Ralph Lauren are seeing solid sales and have gotten price target upgrades from analysts.
  • Historically, stocks that become overbought can sometimes keep rising if the news stays good. For example, a study on RSI found that while many overbought stocks do pull back, some go on to outperform if strong momentum continues.
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Bear Case: Reasons for Caution

  • High RSI readings often mean stocks are due for a pause or a drop.
  • Investors may be overpaying for future growth that might not appear as quickly as hoped.
  • Alphabet faces tough competition in AI, and Merck’s new drug hasn’t proven itself yet.
  • Past data shows that after sharp rallies, stocks often take a breather. For example, research from the National Bureau of Economic Research shows that extreme stock moves often revert to the mean.

Investor Takeaway

  • If you own these stocks, think about locking in some gains or setting stop-losses to protect your profits.
  • Don’t rush to buy stocks just because they’ve gone up fast—wait for a better entry point if prices pull back.
  • Diversify your portfolio so you’re not relying too much on a few hot names.
  • Keep an eye on company news and earnings updates, as surprises can quickly change the outlook.
  • Remember, stocks can run hot for a while, but history shows they often cool off—be patient and stick to your plan.

For the full original report, see CNBC

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