The 10 most overbought and oversold ASX 200 stocks – Week 44

Champion Iron (ASX: CIA) is reaping the benefits of its high-grade iron ore, which has fewer impurities, requires less raw material for the same amount of steel and reduces energy consumption and emissions. After rallying 11% to a fresh 6-month high last week, Champion Iron has landed the spot as the most overbought stock on the ASX 200.

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, Champion Iron is the most overbought stock with an RSI of 70.

The Most Overbought Stocks

'Target price' is an aggregate of broker target prices from Refinitiv. Data of Friday, 27 October 2023 close.

Not all iron ore is made equal: Champion Iron produced an iron ore concentrate with grades of 66.1% in the September quarter, which achieved an average sales price of US$169.4 a tonne. In the same period, Fortescue's iron ore received an average US$100 a tonne which realised 87% of the average Platts 62% CFR Index.

The company reported its September quarter report last Thursday, which was well-received by brokers.

• Citi: Production was in-line but shipments fell short due to ongoing rail constraints. Target price unchanged at $8.70 with a Buy rating. Bullish on longer-term trends such as demand for high-grade iron ore.

• Macquarie: Record production but sales was a little lower than forecast due to Canadian wildfires. EBITDA was stronger-than-expected due to higher realised prices and lower costs. Outperform rating maintained with a $7.80 target price.

Champion Iron 12-month price chart (Source: Market Index)

The Most Oversold Stocks

'Target price' is an aggregate of broker target prices from Refinitiv. Data of Friday, 27 October 2023 close.

The oversold stocks list continues to reiterate a rather persistent theme – Once the stock ends up here, it typically has a hard time getting out. The main suspects include:

• Liontown shares tumbled 31.9% on 20 October after raising $365 million at $1.80 per share or a 35.5% discount to its last close. The stock opened at $1.65 on Monday, 30 October (down another ~9%).

• AMP shares fell around 7% in the three days following its guidance downgrade on 18 October. The drop has widened to around 12% as of Monday, 30 October.

• Credit Corp shares fell around 31% on 18 October after it flagged a savage impairment to the carrying value of its US-purchased debt assets. The company expects FY24 statutory net profit to be down around 56% year-on-year. The stock is currently trading around the same levels at 18 October.

What does the data tell us: Investors continue to remain hesitant on buying the dip. Share prices have had the tendency to grind sideways if not lower following earnings downgrades or downbeat trading updates.