The 10 most overbought and oversold ASX 200 stocks – Week 37

August reporting season may be over, but its effects continue to ripple through the market as winners and losers trend amid residual buying and selling.

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.

Sigma Healthcare is currently the most overbought stock on the ASX 200 with an RSI of 77 while Johns Lyng sits at the opposite end with an RSI of just 16.

Most Overbought ASX 200 Stocks

Over the past sixteen reporting seasons, companies that beat analyst expectations saw an average rally of 5.2% and four months later, extend their gains to an average 6.7%, according to Bell Potter's Richard Coppleson.

This trend suggests that stocks rallying into overbought territory tend to become even more overbought, driven by factors such as analyst upgrades, aggressive market re-ratings, and residual buying from various market participants.

Pro Medicus experienced a 7.1% rally on the day of its results (14 Aug) and up around 19% since then. The company reported a 36.5% increase in FY24 net profit to $82.8 million, surpassing consensus expectations by 4.5%, and management guided towards a "material step up" in transaction volumes for FY25.

Likewise, Wisetech shares surged 18.3% on its result day (21 Aug), closing above $110 for the first time on record, and have maintained a 19% gain since then. Wisetech's results were impressive across the board, with underlying EBITDA, EBITDA margin, underlying net profit, earnings per share, and dividends all showing strong growth, while its FY25 EBITDA guidance significantly exceeded analyst estimates.

• Underlying EBITDA of $495.6 million vs. guidance of $455-490 million

• EBITDA margin of 48% vs. 47% a year ago

• Underlying net profit +15% to $283.5 million

• Earnings per share +23% to 79.4 cents

• Total dividend for FY24 of 16.9 cents

• FY25 EBITDA guidance of $680 million (at the midpoint or 37% year-on-year growth)

Most Oversold ASX 200 Stocks

Conversely, companies that missed expectations in the last 16 reporting seasons saw their stocks decline an average of 6.3% on the reporting day and 8.4% four months later, indicating that oversold stocks tend to become more oversold.

John Lyng shares reflect this negative trend, plummeting 27% on the day of results (27 Aug) and declining a further 17% since. Despite slightly surpassing guidance in underlying EBITDA, driven by strong performance in its catastrophe segment, the company's core business earnings fell short of expectations, and operating cash flow was notably weak. The primary disappointment came from its FY25 guidance, which missed both revenue and EBITDA projections.

These patterns underscore the importance of momentum in post-earnings stock movements and suggest that the initial market reaction to earnings reports often sets the tone for medium-term performance. Investors should be cautious about immediately buying dips in stocks that have disappointed, as the downward trend may continue beyond the initial negative reaction.