The 10 most overbought and oversold ASX 200 stocks – Week 34

Reporting season winners Inghams (ASX: ING), Altium (ASX: ALU) and Cochlear (ASX: COH) have emerged as the most overbought companies on the ASX 200 this week.

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, Inghams is the most overbought stock with an RSI of 84.

Most Overbought Stocks

'Target price' is an aggregate of all broker target prices under Refinitiv's database. Data as at Friday 25, August 2023 close. (Table: Market Index | Source: Refinitiv)

Reporting Season Takeaways: Holding Onto Winners

Almost every single company on this week’s Overbought list reported better-than-expected half-year or full-year results.

More broadly speaking, the stocks experienced a massive rally on the day of the result as well as sustained buying post-earnings.

This tells us a couple of things:

• A catalyst such as strong earnings can inspire a sustained re-rate for the stock

• Don’t cut winners to soon, especially if the stock is beating earnings expectations and rallying off the back of massive volume

• Momentum can take precedence over being technically ‘oversold’

• Keep an eye out for what brokers say the next day, a earnings beat can often result in a series of upgrades in the following day(s) – which can also be a catalyst for sustained buying

Take Inghams for example. It reported:

• Core poultry net selling prices up 12.8% 

• EBITDA of $183.6m, up 35.8%

• Underlying net profit after tax of $71.1m, up 67.7%

• Total FY23 dividends of 14.5 cents per share, up 107.1%

In response to the result, Goldman Sachs upgraded the stock from Neutral to Outperform with a $2.97 target price. 

“A strong 1H23 result which increases our confidence in ING’s earnings recovery and associated deleveraging which previously kept us cautious on the name. Multiples also look more attractive with ING trading … [at] a 15% and 25% discount to peers,” the analyst said.

Inghams rallied 14.75% on the day of its results (Thursday, 17 August) and another 8.8% post-earnings (17-25 August). 

Reporting season losers such as Coles (ASX: COL), Alumina (ASX: AWC) and Ramsay Healthcare (ASX: RHC) are beginning to make an appearance in this week’s oversold stocks list.

As well as persistently oversold and unloved names such as Core Lithium (ASX: CXO) and Iluka Resources (ASX: ILU).

Most Oversold Stocks

'Target price' is an aggregate of all broker target prices under Refinitiv's database. Data as at Friday 25, August 2023 close. (Table: Market Index | Source: Refinitiv)