The 10 most overbought and oversold ASX 200 stocks – Week 50

Unexpected earnings upgrades can often trigger a surge in buying activity for stocks, as seen with Iress (ASX: IRE) – It's on an eight-day winning streak, up almost 40% to a near four-month high.

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, Iress is the most overbought stock on the ASX 200 with an RSI of 88.

The Most Overbought Stocks

'Target price' is an aggregate of broker target prices from Refinitiv. Data of Friday, 8 December 2023 close.

Iress: Can the Gains Stick

It was just two months ago that Iress was down around 45% year-to-date and trading at levels not seen since April 2009.

This follows one of its largest one-day drops on record, down 35.5% on August 21 after announcing weaker-than-expected full-year results as well as a soft outlook and dividend suspension.

The comeback kicked off on November 30 after the company's strategy and guidance update, which noted:

• Full-year adjusted EBITDA to be between $123-128 million vs. prior guidance of $118-122 million

• Second half revenue growth of 2.6% on first half, slightly ahead of prior expectations and cost base to be more favourable due to lower staff costs

• Net debt reduced from $375 million as at 30 June 2023 to $308 million at 31 October 2023

The update was well-received by brokers, with Macquarie reiterating an Outperform rating and $8.35 target price on November 30.

"Full-year adjusted EBITDA to be between $123-128 million vs. prior guidance of $118-122 million Second half revenue growth of 2.6% on first half, slightly ahead of prior expectations and cost base to be more favourable due to lower staff costs Net debt reduced from $375 million as at 30 June 2023 to $308 million at 31 October 2023," the analysts said.

Iress has V-shaped its way into overbought territory. Can the stock stage a calm and constructive pullback or will investors be looking to aggressively get out after such a troubled year? A good case study for the former is Inghams (ASX: ING) – It rallied for eight consecutive days back in August after reporting stronger-than-expected results. The pullback was shallow (no more than 6%).

Inghams announced a massive earnings upgrade on October 31 and rallied another ~17% in subsequent days. It's pullback was again shallow and its now back near recent highs.

Inghams daily chart (Source: TradingView)

The Most Oversold Stocks

The Oversold stocks list highlights broad-based weakness in energy as well as continued headwinds for lithium.

Large cap names like Woodside and Karoon Energy are both trading near 15-month lows following the recent slump in oil prices.

"In line with our Global Commodities Strategy Team, we lower our 2024e Brent oil forecast 6% to US$77/bbl, and US Henry Hub gas 23% to US $2.68/MMBtu," Macquarie analysts said in a note last Friday.

'Target price' is an aggregate of broker target prices from Refinitiv. Data of Friday, 8 December 2023 close.