The 10 most overbought and oversold ASX 200 stocks – Week 23

Banks, Staples and companies reporting robust trading updates have topped the list of overbought stocks, while automotive retailers and resource stocks continue to dip into oversold territory.

The 14-day Relative Strength Index is a momentum indicator that measures the magnitude and speed of recent price changes to assess whether or not a stock is overbought or oversold.

An RSI of 70 or above is considered to be overbought, which means the stock is rising too quickly and likely to experience a pullback. Meanwhile, an RSI of 30 or below is considered to be oversold, which means the stock is falling too quickly and is likely to experience a rebound.

Based on this indicator, Bendigo Bank is the most overbought stock on the ASX 200 with an RSI of 75.

Most Overbought ASX 200 Stocks

Target price' is an aggregate of broker target prices from Refinitiv. Data as of the close on Friday, 7 June 2024

Bendigo Bank is a classic example of how an unexpectedly positive trading update can propel a stock higher for several days, if not weeks. On 17 May, the stock rallied 8.1% after announcing a clean sweep of better-than-expected year-to-date operating numbers.

"BEN's trading update revealed that cash earnings for the first 4 months of 2H24 were 17% ahead of our forecast. We estimate that margins, revenue and pre-provision profit were tracking 9 bps, ~5% and ~13%, respectively, ahead of our forecasts," Morgan Stanley analysts said in a note dated 17 May.

The stock is up another 4.5% since the trading update to levels not seen since August 2021.

Technology One and Aristocrat Leisure have also delivered better-than-expected earnings/trading updates in recent months.

Most Oversold ASX 200 Stocks

Target price' is an aggregate of broker target prices from Refinitiv. Data as of the close on Friday, 7 June 2024

Favourable dynamics for car dealers have come to a halt, with an onslaught of new vehicle supply combined with softening consumer demand. Shares in Eagers Automotive sold off 15% on 22 May after announcing a subtle earnings downgrade, with expectations of first-half FY24 earnings to be 85% of the prior period. This selloff dragged the stock to its lowest point since July 2022, and it has struggled to rebound since.

Mineral Resources, Pilbara Minerals and Liontown shares have sold off 10-25% since late May amid persistent weakness in lithium prices. Chinese lithium carbonate prices are down around 15% since May to near four month lows. The latest lithium markets report from Fastmarkets highlights some rather bearish takeaways for near-term prices:

• "Multiple market participants expressed bearish sentiment, indicating little hope for any demand improvement for lithium salts in the short term, which could add further downward pressure to the lithium prices."

• "Prices dropped in Europe on the expectation that demand will remain weak in China in June. An intermediary reported potential lower prices in the hydroxide market, though transactions had not yet been confirmed."