The 10 most overbought and oversold ASX 200 stocks – Week 47
Fortescue tops ASX 200 overbought list as iron ore prices rebound sharply.
Source: Shutterstock
Mentioned
KEY POINTS
- Iron ore prices have rallied 30% since mid-August, buoying Fortescue's share price 20% since October, making it the most overbought stock on the ASX 200
- AMP shares plunged 15.8% after the company announced a $60 million investment in a digital bank division. The shares are now deeply oversold
Iron ore has defied bearish expectations and rallied to a brief US$131 a tonne last week, marking a 30% bounce from mid-August lows. This surge has fueled a V-shaped rally for Fortescue (ASX: FMG), propelling its share price up around 20% since October to levels not seen since July 2021.
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, Fortescue is the most overbought stock with an RSI of 81.
The Most Overbought Stocks
Ticker | Company Name | RSI | 1-Month % | Close Price | Target price | Upside |
|---|---|---|---|---|---|---|
Fortescue | 81 | 15.3% | $25.22 | $18.70 | -25.9% | |
Graincorp | 78 | 11.5% | $7.87 | $8.73 | 10.9% | |
Seven Group | 78 | 15.9% | $31.43 | $31.86 | 1.4% | |
Elders | 75 | 19.7% | $7.36 | $7.73 | 5.0% | |
Neuren Pharmaceuticals | 75 | 27.8% | $14.68 | $20.15 | 37.3% | |
James Hardie | 75 | 20.3% | $48.11 | $52.93 | 10.0% | |
ALS Limited | 73 | 11.0% | $12.14 | $13.08 | 7.7% | |
Pro Medicus | 72 | 10.0% | $87.54 | $80.08 | -8.5% | |
Cromwell Property | 71 | 14.7% | $0.43 | $0.70 | 62.8% | |
Lifestyle Communities | 71 | 12.2% | $17.69 | $19.19 | 8.5% |
'Target price' is an aggregate of broker target prices from Refinitiv. Data of Friday, 17 November 2023 close.
Making sense of iron ore prices: There's a lot of mixed data coming from China.
The good: Iron ore prices are trading around 28 month highs, Chinese iron ore inventories are near 7-year lows
The bad: China's steel production in October hit a 5-year low, high iron ore prices has pushed steel margins to near all-time lows, China house prices fell the most in eight years in October and China housing starts are sitting around 15-year lows
As far as historical share price performances goes, it's a pretty bullish time for iron ore. The average monthly performance for Singapore iron ore futures for the past 15 years (which goes back as far back as possible):
November performance: +1.7%
December performance: +10.6%
Average gain from November through to next February: +18.3%
Source: Market Index
The Most Oversold Stocks
Ticker | Company Name | RSI | 1-Month % | Close Price | Target price | Upside |
|---|---|---|---|---|---|---|
AMP | 15 | -20.8% | $0.86 | $0.95 | 11.1% | |
Liontown Resources | 20 | -47.0% | $1.48 | $2.09 | 41.2% | |
Karoon Energy | 25 | -22.8% | $2.05 | $2.79 | 36.1% | |
Woodside Energy | 28 | -14.1% | $31.40 | $35.00 | 11.5% | |
Tabcorp | 29 | -13.2% | $0.76 | $1.10 | 45.7% | |
New Hope Corp | 29 | -19.2% | $5.19 | $4.91 | -5.4% | |
IGO | 30 | -21.9% | $8.90 | $12.19 | 37.0% | |
Alumina | 31 | -20.2% | $0.71 | $1.04 | 46.5% | |
Santos | 31 | -11.0% | $6.99 | $8.89 | 27.2% | |
TPG Telecom | 31 | -12.7% | $4.75 | $5.66 | 19.2% |
AMP (ASX: AMP) shares tumbled 15.8% last Thursday after the company announced plans to invest approximately $60 million to launch a digital bank division built 'specifically for the transaction needs of sole traders and small businesses'.
The solution will be built in FY24 and launch in the first quarter of 2025, with costs absorbed within 'current controllable cost targets'. The new division is expected to be net profit after tax and return on capital accretive for the Group from 2027 onwards.
In laymans terms: AMP is investing $60 million to launch a low-margin, greenfield banking product, in what is already a highly competitive space. These products are expected to generate value for investors starting 2027 – But you'll have to see it to believe it.
AMP also said the near-term performance of its banking division will be affected by current market conditions. Management lowered its guidance for FY23 to ~1.25%, with expected further weakness into the second-half.
AMP's extreme oversold status and short covering raises questions about its ability to bounce. Oversold stocks often experience prolonged recoveries, as evidenced by Liontown, Tabcorp, IGO, and Alumina, which have remained oversold for several weeks.
