The market’s shot higher has forced a number of companies into the rare air of registering technically oversold readings.
Historically, these readings indicate that a stock has risen too far too fast and that it is likely to revert back to lower prices, meaning its time for traders to lock in profits.
Right now, Target Corporation (NYSE:TGT), American Airlines Group Inc (NASDAQ:AAL) and Tyson Foods, Inc. (NYSE:TSN).
Target Corporation (TGT)
Retailers have been underperforming the market for some time, with a few exceptions. One of those exceptions has been target lately as the stock has made a fast run from $68 to $74 in a short period of time.
The rally in TGT shares has taken it into a technically overbought condition as the RSI reading is now well above the level considered overbought. The last time that we saw a similar reading from Target on its RSI was in March after the stock rallied from $68 to $84. The result then was sideways trading before the shares finally corrected back to $66 after earnings.
In addition to the overbought conditions, Target stock’s 200-day moving average is directly above it, hovering at $74.77. This longer-term trendline will be additional pressure for technical traders to start thinking about pocketing recent profits by selling.
American Airlines Group Inc (AAL)
Another stock on the overbought list is American Airlines. The transportation and airline companies have taken off lately (pun intended) as the sector has rebounded strongly from an oversold condition two weeks ago.
American Airlines has led the charge, moving more than 40% higher over this period, making it one of the strongest performers but also one of the most likely to experience some profit-taking from the short-term traders.
The current RSI reading for American Airlines is almost identical to what we saw in March, just before shares plummeted 12%. There is some room for the airliner’s stock to move higher, but the short-term traders will surely start pulling profits soon likely reversing their short-term rally into a correction.
Tyson Foods Inc (TSN)
With year-to-date returns over 30%, Tyson Foods has been one of the hotter stocks out there but has flown below most trader’s radars. The food product company benefits fundamentally from being a consumer products company, which often remain strong during volatile markets.
The one-month returns of 16% have tallied-up with almost no volatility as the stock has drawn a straight line to $70, making it hard to think about selling or shorting the stock, but as far as the charts go, Tyson is likely to begin reverting back to a mean price that is in the area of $65.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
