After a powerful market rally that pushed the S&P 500 to fresh all-time highs, savvy investors are now eyeing the horizon with caution. While the optimism fueled by easing tariff fears and trade tensions has driven many tech and AI-related stocks to impressive gains, a key technical indicator—the 14-day Relative Strength Index (RSI)—suggests some of these names might be due for a cooldown. At Extreme Investor Network, we dig deeper than surface-level market cheers to uncover what this means for your portfolio and strategy going forward.
The Overbought Tech Surge: Is the AI Boom Peaking?
The RSI is a tried-and-true momentum gauge used by traders to assess whether a stock is overbought (RSI above 70) or oversold (RSI below 30). This week, several tech giants and AI beneficiaries are flashing red on this meter. Jabil, a crucial Apple supplier, tops the list with an eye-popping RSI of 90.8, signaling a potential near-term pullback despite its recent 5% weekly gain and a fresh 52-week high. This follows Jabil’s upward revision of its full-year earnings and revenue outlook—yet, the market may be pricing in too much too soon.
Microsoft and Netflix, along with chipmakers like Advanced Micro Devices (AMD) and Micron Technology, also sport RSIs near or above 80. Microsoft’s RSI of 79.1 comes after a nearly 4% weekly jump, buoyed by bullish analyst price target upgrades from Morgan Stanley ($530 from $482) and Wells Fargo, both citing Microsoft’s leadership in generative AI. AMD’s 12% weekly surge has made it a key player in the S&P 500’s recovery since April, riding the AI wave alongside data storage firms Western Digital and Seagate, which boast RSIs of 88.6 and 84.8 respectively. Seagate’s stock has soared nearly 64% year-to-date, reflecting robust demand for data center storage.
Expert Insight: While AI remains a transformative force, the current RSI readings suggest these stocks may be vulnerable to profit-taking or short-term corrections. For investors, this is a critical juncture to consider trimming exposure or employing hedging strategies, especially if your portfolio is heavily tech-weighted. Diversification into sectors with healthier valuations could mitigate volatility risk.
Financials Showing Strength but Overheated?
Interestingly, financial heavyweights JPMorgan Chase and Goldman Sachs also appear overbought with RSIs around 80. These banks have benefited from rising interest rates and strong earnings reports, but elevated RSI levels warn of potential pullbacks. Investors should watch for upcoming earnings releases and macroeconomic data to gauge if these financials can sustain momentum or if they’ll face a technical retreat.
The Oversold Opportunity: Food & Beverage and Retail
On the flip side, consumer staples and retail stocks are languishing with low RSIs, signaling possible undervaluation. Molson Coors is the most oversold with an RSI of 18.3, down over 17% year-to-date amid market share losses and a recent downgrade from Bank of America. Other oversold names include Conagra Brands, Campbell’s, Ross Stores, and Lululemon Athletica—the latter despite beating fiscal Q1 earnings estimates but lowering full-year guidance.
Actionable Advice: These oversold stocks could represent compelling entry points for value investors willing to weather short-term uncertainty. Consumer staples often offer defensive qualities during market volatility, while retailers like Lululemon may rebound as the economy stabilizes and consumer spending normalizes.
What’s Next? Strategic Moves for Investors and Advisors
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Rebalance with RSI in Mind: Use RSI readings as a tactical tool to trim overbought positions and redeploy capital into undervalued sectors. This approach can smooth portfolio returns amid the current market’s seesaw between optimism and caution.
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Focus on Fundamentals, Not Just Momentum: While momentum stocks like AI leaders have dazzled, underlying fundamentals and realistic growth expectations must guide investment decisions. For example, Microsoft’s AI investments are promising, but valuations need to align with sustainable earnings growth.
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Prepare for Volatility: With geopolitical uncertainties and trade talks still in flux—despite the recent market resilience—investors should consider options strategies or stop-loss orders to protect gains in overbought stocks.
- Stay Informed on Sector Shifts: The rapid growth in data storage and AI-related tech is undeniable, but keep an eye on emerging sectors that may benefit from shifting consumer and business spending patterns, such as renewable energy or healthcare innovation.
Final Thought
The market’s recent rally is a testament to investor confidence, but the RSI signals flashing across key stocks are a cautionary beacon. At Extreme Investor Network, we believe the smartest investors will use this moment to reassess risk, take profits where appropriate, and seek value in overlooked corners of the market. The next few weeks could be pivotal in setting the tone for the rest of the year—don’t get caught chasing yesterday’s winners without a clear strategy.
For a deeper dive into these trends and tailored portfolio advice, stay tuned to Extreme Investor Network—where insight meets action.
Sources: CNBC Pro Screener, Morgan Stanley Research, Wells Fargo Equity Research, Bank of America Securities
Source: Overbought stocks that may cool off as the market trades at record highs