The 40 Most Overbought Stocks and ETFs

The S&P 500 Index (SPX) overbought signal hasn't sounded since April, and could point to short-term weakness for stocks

Nov 24, 2016 at 1:00 PM
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The S&P 500 Index (SPX) has been barreling up the charts since the presidential election, tagging a record high north of 2,200 on Tuesday. In fact, the index has added more than 5.5% since Nov. 4, when it was flirting with post-Brexit lows. Against this backdrop, 22% of S&P 500 stocks are now in overbought territory -- and we're just off the most overbought skew since late 2014. Below we'll discuss how the S&P tends to perform after these signals, and outline the 25 most overbought stocks and 15 most overbought exchange-traded funds (ETFs) right now.

SPX Overbought 1

According to Schaeffer's Senior Quantitative Analyst Rocky White, the last time at least 20% of SPX components were overbought -- as measured by a 14-day Relative Strength Index (RSI) at or above 70 -- was April 1, 2016. Going back to 2010, this signal (which counts only the first reading in at least 30 calendar days; we officially crossed the 20% threshold on Nov. 10, amid the initial election rally) has sounded just 13 other times.

The S&P tends to endure some short-term weakness after these signals, averaging a one- and two-week loss, compared to anytime gains. The index's post-signal one- and three-month average returns of 0.48% and 2.22%, respectively, are also below average anytime returns. However, the percent positive one month after a signal is 69.2%, compared to 64.8% anytime, and the S&P is in the black a whopping 84.6% of the time three months after a signal, compared to 72.1% anytime.

SPX overbought signal 2

In yellow below are all the times that at least 20% of S&P components were overbought, going back to 2013. It's obviously not uncommon for the S&P 500 to pull back after overbought signals, evidenced by the small grooves lower. But with the exception of 2015, in which there were no overbought signals, the SPX has been marking a series of higher highs and lows.

SPX Overbought 3

Finally, below are the 25 most overbought S&P 500 Index (SPX) stocks, and the 15 most overbought ETFs, as of the close on Tuesday. Among the standout sectors are airlines, with United Continental Holdings Inc (NYSE:UAL) and the PowerShares Dynamic Leisure & Entertainment ETF (PEJ) leading the charge. Delta Air Lines, Inc. (NYSE:DAL) and the PowerShares Aerospace & Defense ETF (PPA) also made the cut.

Outside of airlines, quite a few retail names cropped up, led by Macy's Inc (NYSE:M) -- a historical underperformer the week after Black Friday -- as did the Financial Select Sector SPDR ETF (XLF), with nine of the 25 stocks falling under the "Banks" or "Wall Street" umbrella. Further, the SPDR S&P 500 ETF (SPY) -- the SPX's cohort -- is close to overbought, the SPDR Dow Jones Industrial Average ETF (DIA) sports an RSI of 71.8, and the iShares Russell 2000 ETF (IWM) -- which coincides with the red-hot Russell 2000 Index (RUT) -- is near the top of the list.

SPX Overbought 4

SPX Overbought ETFs

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