The 10 most overbought and oversold ASX 200 stocks – Week 5

Insurance isn't the most flashy sector but stocks like AUB Group (ASX: AUB), Medibank (ASX: MPL) and Helia Group (ASX: HLI) are up around 5-15% year-to-date and quietly grinding towards multi-year highs.

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, Helia is the most overbought stock on the ASX 200 with an RSI of 86.

Most Overbought ASX 200 Stocks

'Target price' is an aggregate of broker target prices from Refinitiv. Data of Thursday, 25 January 2024 close.

Helia (formerly Genworth Mortgage Insurance) shares have logged ten consecutive weeks of gains, up 26.4% since mid-November 2023. From a performance perspective, it's hard to argue against its position as a leader within the insurance sector. Most insurance peers have only recently started to pop above recent highs and still trading well-below pre-pandemic levels. Helia was one of the first insurance names to:

• Hit a 52-week high in February 2023

• Hit a three-year high early 2023

• Push above 2020 highs in early January 2024

Helia weekly price chart (Source: Market Index)

"We think the relatively positive EPS growth and the attractiveness of the insurers and the brokers will continue in early to mid-2024," Morgan Stanley analysts said in a note dated January 17.

"Suncorp and Insurance Australia are the best pure-play names to own, given personal lines, pricing power and a favourable backdrop with the option to over-earn in the short-term," the analysts noted.

"We note the insurers remain cheap on~11x P/E vs. mid-teens levels five years ago and could re-rate if they can reduce earnings volatility."

Most Oversold ASX 200 Stocks

'Target price' is an aggregate of broker target prices from Refinitiv. Data of Thursday, 25 January 2024 close.

The oversold list continues to feature the same names – Liontown Resources, Sayona Mining and Chalice Mining – emerging battery metal producers with marginal projects/economics.

Domino's Pizza shares nosedived 31% last Thursday after issuing a profit warning for the first-half of FY24. The company said its first-half profit fell below expectations, signally a more significant operational decline than anticipated. Despite cost-saving initiatives, the balance sheet remains tight and earnings visibility remains poor. The average target price across 15 sell-side ratings was cut by 8.5% to $51.38.

Domino's shares closed at $39.51 on Thursday, a level not seen since August 2019. The stock has never been this oversold, with data dating back to 2005.