The stock market recently experienced a week of volatility, with major averages like the S&P 500 and Dow Jones Industrial Average falling 1.6% and 2.4% respectively. This decline marked their second consecutive week of losses, while the Nasdaq Composite dipped 0.5% in its third straight weekly loss. The market’s performance was influenced by inflationary fears, rising Treasury yields, and subdued bank earnings, causing investors to navigate through uncertain waters. In such a landscape, it is crucial for investors to identify potential opportunities for rebound, as well as recognize stocks that may be due for further cooling off.
Using a stock screener tool like CNBC Pro’s 14-day relative strength index (RSI), investors can identify overbought and oversold stocks on Wall Street. Stocks with an RSI above 70 are considered overbought, indicating a potential reversal in price, while those with an RSI below 30 are deemed oversold, suggesting a rebound may be imminent. Among the overbought stocks, Devon Energy stood out with an RSI of 82, driven by a Wells Fargo upgrade and potential well productivity improvements. Additionally, Exxon Mobil, with a similar RSI of 82 and a recent all-time high, could also be considered overbought, especially after Barclays initiated research coverage with an overweight rating.
On the other hand, the stock market also presents opportunities for investment, particularly in companies like Deere, a farm equipment maker with an RSI of 79. Truist Securities initiated coverage of Deere with a buy rating, citing its strong management and growing technology story. Despite being relatively unchanged in 2024, Deere offers a compelling investment proposition for those seeking exposure to the industrial machinery sector. By carefully analyzing such opportunities, investors can position themselves for potential growth and returns in the market.
Conversely, some stocks are facing significant challenges, such as Globe Life, a Texas-based life insurer with an RSI of just 3. The stock has plummeted by 52% this year, following allegations of insurance fraud by a short seller. While the management of Globe Life has refuted these claims and received a price target reaffirmation from Truist Securities, the stock remains under intense scrutiny. Similarly, Lamb Weston, an Idaho-based french-fry maker, has faced a downturn, dropping 26% this year after missing earnings expectations. Investors should exercise caution when considering investments in such volatile stocks, as they may continue to face headwinds in the near term.
The stock market’s recent volatility presents a mix of opportunities and risks for investors. By conducting thorough analysis and utilizing tools like the RSI to identify overbought and oversold stocks, investors can navigate through uncertain market conditions. It is essential to remain vigilant and proactive in capitalizing on potential investment opportunities, while also mitigating risks associated with volatile stocks. With a strategic approach and a keen understanding of market dynamics, investors can position themselves for success in an ever-changing financial landscape.