The 10 most overbought and oversold ASX 200 stocks – Week 35

Reporting season winners like Hub24, Johns Lyng Group and Inghams are refusing to give back any of their post-earnings gains, which makes them the most overbought stocks 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, Hub24 is the most overbought stock with an RSI of 82.

Most Overbought Stocks

'Target price' is an aggregate of all broker target prices under Refinitiv's database. Data as at 1 September 2023 close. (Table: Market Index | Source: Refinitiv)

A closer look at Inghams: Inghams experienced a 14.8% rally on the day of its FY23 results on Thursday, 17 August. From there, it rallied another 12% by 29 August.

The result noted a 12.8% increased in the average net selling price for poultry to $5.96 per kilo, which provides a revenue tailwind into FY24.

Brokers were relatively upbeat on the result, with:

• Macquarie: "We increase our PT on the strong FY23 results. We are bullish on the group's medium term outlook. But strong stock price performance has lifted the share price into our neutral band."

• Goldman Sachs: "ING executed well on managing a complicated demand/supply/cost environment in FY23 and earnings returned to pre-COVID levels ~6-12 months earlier than we had anticipated."

Inghams 3-month price chart

What can we learn from this:

• The magnitude of the earnings beat and guidance as well as broker commentary can inspire a sustained re-rate for companies during reporting season

• Momentum can take precedence over being 'technically oversold'

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

That said, a few of these names are beginning to pull back on Monday. So let's see what the pullback is like.

As for oversold stocks, Chalice Mining tumbled 25% last Wednesday after its highly anticipated scoping study failed to market expectations. The sharp selloff lands the stock as the most oversold stock with an RSI of just 13.

Most Oversold Stocks

'Target price' is an aggregate of all broker target prices under Refinitiv's database. Data as at 1 September 2023 close. (Table: Market Index | Source: Refinitiv)

The problem with being oversold: A lot of stocks that end up with sub 30 RSIs tend to remain oversold for quite some time. In the past month, names like Core Lithium, Resmed, Alumina and Perpetual have slumped into oversold territory but struggled to bounce.

After Chalice's 25% selloff last Wednesday, the stock sold off another 12% over the next two sessions. I guess that's the risk of catching a falling knife.

Chalice Mining 12-month price chart (Source: Market Index)