The Most Overbought Stocks and Sectors Right Now

Today's tech-led dip may have been in the cards after a red-hot rally

by Andrea Kramer

Published on Oct 19, 2017 at 2:40 PM

U.S. stocks are pulling back from record highs today, as Apple Inc. (NASDAQ:AAPL) leads a tech sell-off. However, a stock market breather this week may not be too surprising, considering we recently sent up an overbought signal that's sounded only two other times this year. Below, we'll break down the overbought signal, and explain why a tech cool-down may have been in the cards. We'll also unveil the 20 most overbought stocks right now -- including two notable Dow stocks -- and the 20 most oversold equities, too.

Third Overbought Signal of 2017

Earlier this month, the percentage of overbought S&P 500 Index (SPX) stocks -- stocks with a 14-day Relative Strength Index (RSI) above 70 -- exceeded 20% for the first time since June 1. The net overbought/oversold level -- which is just the percentage of overbought stocks minus the percentage of oversold stocks (an RSI below 30) -- also topped 20%, what we'll call a signal. Schaeffer's Senior Quantitative Analyst Rocky White considered only one signal per 21 trading days.

SPX overbought signal


As alluded to earlier, there have been just three signals in 2017, with the first flashing in mid-February. Prior to that, you'd have to go back to the initial "Trump Rally" days of November 2016. Since 2010, there have been 23 of these signals, with at least one each year except 2015.

In the two weeks after a signal, the S&P 500 Index averaged a loss of 0.28%, and was positive not even half the time. That's compared to an average anytime two-week gain of 0.45%, with a win rate of 62%. Looking out further, the SPX has averaged slimmer-than-usual gains one and three months after these overbought signals, so perhaps it's no surprise that the major market indexes are taking a respite from their recent rally to record highs.

spx after overbought signals


Most Overbought Sectors and Stocks

Below is a list of the most overbought exchange-traded funds (ETFs) right now. The SPDR Dow Jones Industrial Average ETF (DIA) -- which coincides with the red-hot Dow -- has the highest RSI at 86.1. Meanwhile, quite a few tech ETFs made the cut, including the VanEck Vectors Semiconductor ETF (SMH) -- second on the list -- and the Technology Select Sector SPDR Fund (XLK), along with the First Trust Dow Jones Internet Index Fund (FDN). Against this backdrop, today's tech-led dip isn't too much of a shock.

most overbought etfs


Below is a list of the 20 most overbought stocks right now. IBM Corp. (NYSE:IBM) stock -- among the holdings of both the DIA and XLK funds -- is near the top of the pack after yesterday's earnings rally. Meanwhile, fellow Dow stock Intel Corporation (NASDAQ:INTC) is also on the list, and was last seen 0.2% lower after notching a 15-year high of $40.33 earlier today. It's worth noting that Intel is just one of a handful of big-cap tech companies slated to report earnings next week.

most overbought spx stocks


Oversold Stocks Bucking the Trend

Finally, below is a list of the 20 most oversold stocks at the moment. A handful of drugmakers and healthcare stocks made the cut, including Express Scripts Holding Company (NASDAQ:ESRX), which recently touched a five-year low amid concerns about Amazon competition. Traders looking for buying opportunities in the pharmaceutical sector may want to consider this pair of biotech stocks.

most oversold spx stocks


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