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

Reporting season is in full swing, with standout performers and disappointments dominating this week's overbought and oversold lists.

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.

Technology One is the most overbought stock on the ASX 200 with an RSI of 83 while Collins food sits at the opposite end with an RSI of just 20.

Most Overbought ASX 200 Stocks

A key statistic worth revisiting comes from Bell Potter's Richard Coppleson: Over the past 16 reporting seasons, companies beating earnings expectations have seen an average 5.2% rally on results day, with gains extending to 6.7% four months later.

Several stocks from the above list have experienced significant one-day rallies on the back of better-than-expected earnings. These gains have often continued, fueled by factors such as broker upgrades, institutional buying, and overall market strength.

Let's examine how some of these reporting season standouts performed on their results day and in the subsequent period:

• Brambles (21-Aug) rallied 9.2% and up 5% since reporting

• Super Retail Group (22-Aug) up 6.2% and up 2.5% since reporting

• Breville (21-Aug) up 4.6% and rallied 8.3% since reporting

• Wisetech Global (21-Aug) soared 18.3% and up 7.5% since reporting

Most Oversold ASX 200 Stocks

The inverse effect is equally notable for stocks that miss earnings expectations. Coppleson's data shows that over the past 16 reporting seasons, companies falling short of expectations saw an average 6.3% drop on reporting day, with losses extending to 8.4% four months later.

So if you thought a stock was oversold and due for a bounce – more often than not, it continues to grind lower as the market digests the below consensus numbers.

However, it's worth noting that several stocks on the oversold list have experienced dramatic selloffs of around 20% (including A2 Milk, Inghams, and Megaport). The sheer magnitude of these declines might suggest the potential for an oversold bounce, as extreme pessimism could already be priced in.