10 Tech Stocks That Are Disturbingly Overbought

These stocks have had a great run but it looks like the fun's over

tech stocks - 10 Tech Stocks That Are Disturbingly Overbought

Source: Liz Foreman via Flickr

Tech stocks are looking much healthier after a miserable start to the year, but it’s always important to remember that the market never moves in a straight line. The huge run-up in prices since mid-February has pulled any number of names out of the red for the year-to-date, but it also has some of them looking vulnerable to a pullback.

10 Tech Stocks That Are Disturbingly OverboughtThese forces are amply on display in the resurgent technology sector. Since the market bottomed seven weeks ago, the S&P 500 is up more than 12%. Even better, the tech-heavy Nasdaq Composite Index has gained nearly 14%.

Those are some seriously strong moves, but with a number of big tech stocks in rally mode, naturally some look like they’re getting ready to peak.

There’s nothing wrong with this, of course. Stocks need to consolidate from time to time in order to proceed to new highs. But it’s still a good idea to be prepared for it. Hey, this is what stop-loss orders were made for.

We sifted through the largest stocks in the tech sector to find hot performers that look clearly overbought and which are therefore in danger of a fall. We primarily relied on a technical analytical tool known as the Relative Strength Index.

Anytime a stock’s RSI breaks over 70, it’s best to know about it. Although a high RSI isn’t a sell signal in and of itself, it is an important warning sign in any comprehensive technical view of a security.

Here are the 10 tech stocks that are disturbingly overbought:

Overbought Tech Stocks: Apple Inc. (AAPL)

tech stocks AAPL
Click to Enlarge
Apple Inc. (AAPL) gets so little positive press these days it almost comes as a surprise that shares are beating the market by a comfortable margin this year. However, this performance has also made Apple stock look like it’s petering out by RSI. It’s just a bit below 74.

Another technical development is that AAPL stock is testing resistance at its 200-day moving average. If Apple stock can break through that level for the first time since November, momentum should remain.

Just be forewarned that although an overbought stock can stay that way for some time, it’s less likely to do so if it fails a test like the one AAPL stock is currently taking.

Overbought Tech Stocks: Accenture Plc (ACN)

ACN
Click to Enlarge
Accenture Plc (ACN) is having an excellent year and has been on fire since the market’s Feb. 11 low. Shares are up 11% YTD and 24% from the most recent bottom.

Of course this kind of rally can stress everything from a stock’s valuation to its technicals. Look at the RSI of 80, and you’ll see that ACN looks heavily overbought.

Complicating matters is that ACN described the buy signal of a golden cross about a month ago and it setting new record highs almost every day.

Sadly, that kind of turbocharged upside momentum can’t go on forever. As ACN becomes more overbought, the likelihood of a period of consolidation increases.

Overbought Tech Stocks: Applied Materials, Inc. (AMAT)

AMAT
Click to Enlarge
Applied Materials, Inc. (AMAT) is another name on a tear this year. AMAT is up 14% YTD and a whopping 35% since the 2016 low.

The company’s $615 million expansion plans in China and some bullish analyst commentary are underpinning gains. However, sometimes momentum is its own catalyst.

Everyone loves a winner, especially when gains are hard to come by, as has been the case this year. But with so many investors piling in and chasing performance, at some point something has to give. With an RSI of 71, it looks like a cleansing pullback is in order.

Overbought Tech Stocks: Computer Sciences Corporation (CSC)

CSC
Click to Enlarge
Computer Sciences Corporation (CSC) — the only name on this list not in the S&P 500 — has generated much more modest gains this year. Shares are up about 3%.

On the one hand, you could say CSC has plenty of room to run. But a more cautious approach would be to look for a pullback. With an RSI knocking on the door of 80, CSC hasn’t been this overbought since the end of December, when it took a precipitous fall.

This is not to say that anything has changed in the long-term. The 200-DMA has been steadily increasing for almost three years. It’s also comforting that CSC is traditionally a stock with low volatility.

Overbought Tech Stocks: Cisco Systems, Inc. (CSCO)

CSCO
Click to Enlarge
The way Cisco Systems, Inc. (CSCO) is trading these days it looks preordained for a selloff. It’s overbought with the price just on the edge of 70 — and it always poops out at current levels.

Look at the chart and you’ll see that on three occasions, CSCO exhausted itself around current prices in the past 52 weeks. On the plus side, CSCO bounced sharply off February’s deep low and easily broke resistance at its 50- and 200-DMAs.

It also has a little upside before it hits that $29 to $30 price where it gives up. We’re probably not there yet, but be ready for CSCO to peak and pull back soon.

Overbought Tech Stocks: Corning Incorporated (GLW)

GLW
Click to Enlarge
There is actually a lot to like in Corning Incorporated’s (GLW) chart. Shares are comfortably above their 50- and 200-DMA’s and it recently carved out a golden cross. Odds are good that it can continue its run for the time being.

Partly this is due to fundamental factors like a promise to raise its dividend through 2019 and adding $4 billion to its share repurchase program.

However, with an RSI of 75, the stock is overbought. Make of that what you will. Stocks can stay overbought for a long time, but it is a blemish on the technical picture.

Overbought Tech Stocks: International Business Machines Corp. (IBM)

IBM
Click to Enlarge
International Business Machines Corp. (IBM) stock is a strange cat. It’s hard to get too excited about it but it’s also showing some serious signs of life.

IBM has been in a downtrend for about a year and a half. Although it hasn’t broken out yet, it looks poised to do so. Shares cleared resistance at key levels for the first time since mid-2014 (although they weren’t there long) and recently bounced off the 200-DMA.

That said, stocks never go up in a straight line. With an RSI of 73, don’t be surprised if IBM appears to stumble in the near future.

Overbought Tech Stocks: Nvidia Corporation (NVDA)

NVDA_040116
Click to Enlarge
Nvidia Corporation (NVDA) found support at its 200-DMA back in mid-February and now it’s setting new 52-week highs and flirting with an all-time high last seen almost nine years ago.

That suggests NVDA has a lot of momentum, and naturally traders and investors are surfing the wave.

At the same time, it has made NVDA hit overbought territory. The RSI is up to 77.

The last time NVDA’s RSI was this stretched, back in October, it didn’t matter. Shares rose through year-end. However, the previous rally was touched off by a golden cross. No such buy signal exists this time around and the valuation — a forward earnings multiple of 26 on a sub-6% growth rate — has gotten far ahead of itself.

Overbought Tech Stocks: Xerox Corp (XRX)

XRX
Click to Enlarge
Xerox Corp (XRX) finally broke through the trap of its 200-DMA — and ended its struggle with the 50-DMA — and its long-term trend is at last flattening out. By a number of technical factors, this perennial dog is actually looking pretty good.

Be that as it may, the RSI of 74 says this stock is overbought. Another concern is that this year’s gains are being driven by its planned spinoff. What’s the point of owning shares in two companies with weak growth prospects?

XRX hasn’t looked this good in a long time, but technical momentum and spinoff euphoria will only get it so far.

Overbought Tech Stocks: Yahoo! Inc. (YHOO)

YHOO
Click to Enlarge
There’s only one reason that the market is excited about Yahoo Inc. (YHOO), and it’s probably overblown. Its core business is in play and it’s looking at a potential proxy fight with an activist investor.

Investors and traders are betting that YHOO can command a premium that boosts its share price even more. Good luck with that. This incompetent company has bungled every other initiative it has tried for as long as anyone can remember. What’s to say they won’t botch the sale too?

Regardless, YHOO does have some technical strength, with shares above their 50- and 200-DMAs for the first time in a year. Just beware that with an RSI of 73, overbought conditions could signal an end to this interregnum soon.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2016/04/tech-stocks-technical-analysis/.

©2020 InvestorPlace Media, LLC