Tech Titans on the Edge: Alphabet and Two Other Stocks Show Overbought Signals as Market Hits Record Highs — What Investors Need to Watch Now
After a record-setting week on Wall Street, investors are facing a classic market paradox: while the S&P 500 edges close to all-time highs, a growing number of individual stocks are showing signs of being overbought and vulnerable to pullbacks. This divergence is a critical signal that savvy investors and advisors cannot afford to ignore.
The S&P 500 recently touched a fresh peak, fueled by bets on a potential Federal Reserve rate cut following a disappointing August jobs report. However, the euphoria was short-lived as the index ended the day lower, though it still managed a modest weekly gain, lingering just about 1% from its record high. This near-record level might suggest broad market strength, but beneath the surface, some stocks have surged too far, too fast, setting the stage for possible near-term corrections.
Using the 14-day Relative Strength Index (RSI) — a trusted technical indicator where readings above 70 signal overbought conditions and below 30 suggest oversold opportunities — we can identify which stocks are at risk. Alphabet (GOOGL), for example, has rocketed over 9% in just one week, pushing its RSI to an extreme 84.1. This spike is largely attributed to a favorable federal court ruling that allowed Google to retain its Chrome browser, a vital revenue driver. This legal win added over $230 billion to Alphabet’s market cap, but such a rapid ascent raises questions about sustainability.
Similarly, data storage giants Seagate Technology (STX) and Western Digital (WDC) have also been on a tear, with weekly gains of 10% and 15%, respectively. Morgan Stanley’s Erik Woodring recently spotlighted Seagate as a top pick, citing “increased confidence” in its technology roadmap and labeling its valuation discount to peers as “unwarranted.” Yet, Seagate’s RSI of 75.4 suggests the stock might be overheating, hinting at a potential cooldown.
On the flip side, some stocks are oversold and could offer contrarian opportunities. Dollar Tree (DLTR), a discount retailer, fell more than 8% this week after issuing guidance that disappointed investors despite strong Q2 earnings. With an RSI below 30, Dollar Tree might be poised for a rebound as the market digests its longer-term growth prospects.
What This Means for Investors and Advisors
-
Reassess Overbought Positions: Stocks with RSI readings above 70 often face short-term pullbacks or consolidation. Investors holding names like Alphabet, Seagate, or Western Digital should consider tightening stop-loss orders or taking partial profits to lock in gains while preparing for volatility.
-
Look for Oversold Opportunities: Stocks like Dollar Tree, which have been punished despite solid fundamentals, might represent buy-the-dip moments. Advisors should conduct thorough fundamental reviews to identify overlooked gems that could benefit from market rotation.
-
Focus on Valuation and Fundamentals: The market’s recent behavior underscores the importance of not chasing momentum blindly. For instance, Morgan Stanley’s note on Seagate highlights a rare analyst conviction that a valuation gap is unjustified—yet technical signals warn of overheating. The best strategy balances these perspectives.
-
Monitor Fed Policy Signals: The market’s sensitivity to Federal Reserve moves remains high. Investors should stay alert to economic data releases and Fed communications, as these will continue to drive market sentiment and sector rotations.
Unique Insight: The Rise of Tech Legal Battles as Market Movers
Alphabet’s surge following the antitrust ruling is a prime example of how legal outcomes are becoming pivotal catalysts for tech stocks. This trend is likely to intensify as regulatory scrutiny worldwide increases. Investors should keep an eye on companies embroiled in litigation or regulatory reviews, as verdicts can trigger outsized price moves in either direction.
A Data Point to Watch: According to a recent report from FactSet, nearly 40% of S&P 500 companies have RSI levels above 70, the highest proportion since early 2021. This clustering suggests a broader market overextension, reinforcing the need for caution.
What’s Next?
We anticipate a period of increased volatility where investors must be nimble. Overbought stocks may face profit-taking, while oversold names could attract bargain hunters. Advisors should emphasize risk management and diversification, avoiding concentration in any single overheated sector or stock.
In the coming weeks, watch for shifts in Fed policy and economic data that could tip the scales. Prepare for a possible market rotation from high-flying tech and growth stocks into value and cyclical sectors that may have been left behind.
Actionable Takeaway: Investors should integrate RSI and other momentum indicators into their portfolio reviews regularly, not just fundamental analysis. This dual approach helps identify not only what to buy but when to buy or sell, enhancing timing and risk control.
By staying ahead of these technical and fundamental signals, investors and advisors can navigate the current market landscape with confidence, capturing gains while avoiding costly mistakes. Extreme Investor Network will continue to bring you these critical insights to keep your strategies sharp and your portfolios resilient.
Source: Alphabet and these two other stocks are overbought with the market near all-time highs
