The 10 most overbought and oversold ASX 200 stocks – Week 39

China pulled the trigger on a bold stimulus package last week, triggering a sharp rally across base metal stocks, with names like South32 and Sandfire Resources leading the charge. On the flip side, The Star Entertainment hit rock bottom, plummeting to record lows after reporting a staggering $1.7 billion loss.

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.

Siteminder was the most overbought stock on the S&P/ASX 200 last week, with an RSI of 88, while The Star Entertainment Group sits on the opposite end with an RSI of just 12.

Most Overbought ASX 200 Stocks

Data as at Friday, 27 September 2024 close

Tech Runners and China Stimulus

Siteminder has rallied for twelve consecutive sessions, up 27% since 11 September to record levels. Last month, Morgan Stanley highlighted the company as a key pick out of reporting season, underpinned by resilient sales growth amid a softening global travel demand outlook.

"We feel the new product pipeline depth and potential materiality could surprise meaningfully vs modest expectations," the analysts said in a note dated 11 September.

"Ongoing growth in property count, total rooms and GBV remain solid despite market wide deceleration."

The People's Bank of China announced broad monetary stimulus and property support measures on Tuesday and Friday last week. This included:

• A 20 bp cut to its new benchmark, the seven-day repo rate, to 1.5%

• A 50 bp reserve requirement ratio (RRR) cut – the RRR is the percentage of deposits that banks are required to hold as reserves. Lowering the ratio allows banks to lend more

• RRR cut frees up approximately 1 trillion yuan (US$142 billion) for new lending

• Commercial banks will be guided to lower interest rates on existing mortgages by 50 bps to provide relief to households. This is expected to benefit more than 50 million households and ease collective interest repayments by 150 billion yuan (US$21 billion)

• Down-payments for second-home buyers will be eased from 25% to 15%

• A new swap program of 500 billion yuan (US$71 billion) allows funds, insurers and brokers easier access to funding for share buybacks

• Plans to issue 2 trillion yuan (US$284 billion) in special sovereign bonds

• Plans to lift key home purchase restrictions in the coming weeks

The news has driven a sharp rally across most base metal names. South32 has topped the overbought list as the stock is currently on a six day winning streak, up 17.8%.

However, the effectiveness of these measures on China's ailing economy remains uncertain. The latest data from China has been far from stabilising, with new home prices down 5.3% year-on-year in August 2024, marking a 14th straight month of declines and the steepest pace since May 2015. As far as the stocks are concerned, it will be interesting to see if they can hold onto their recent gains and continue to set higher highs.

Most Oversold ASX 200 Stocks

Data as at Friday, 27 September 2024 close

Poor Results, Lingering Pain

Shares in the Star plummeted 44% to a record low of 25 cents last Friday after emerging from a month-long suspension. In early September, the stock was suspended after failing to release its full-year results within the required period, and last Thursday the company reported a blowout loss of $1.69 billion.

The result flagged that trading conditions have remained challenging and continued to deteriorate across all of the Star's properties, driven by a reduction in revenue and higher operating expenses.

A $200 million new loan was secured to keep the company afloat, while CEO Steven McCann has committed to significant cost-cutting measures, including job losses and potential asset sales.