The 10 most overbought ASX 200 stocks – Week 8

A generous takeover offer can swiftly push a stock into overbought territory. Altium's (ASX: ALU) board of directors unanimously recommended shareholders to accept the $68.50 per share takeover offer (or 33.6% premium) from Japanese chipmaker Renesas.

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

Most Overbought ASX 200 Stocks

'Target price' is an aggregate of broker target prices from Refinitiv. Data of Friday, 16 February 2024 close.

Wesfarmers shares are almost 8% since its first-half FY24 result on Wednesday, 15 February. Some of Citi's key takeaways from the result include:

• The Group delivered EBIT of $2.2 billion, which was 9% above Citi estimates and 4% ahead of consensus

• Bunnings held earnings flat during a period where Citi expected it to post negative earnings growth given a weak hardware category and cost pressures

• Kmart margin smashed expectations due to lower shipping and private label sourcing costs. The recent rollout of Anko to Target will likely provide further margin support

• WesCEF is under pressure amid weak spodumene spot prices, lower ammonium nitrate pricing and higher gas costs

• "We no longer see downside risks to consensus estimates and upgrade our earnings forecasts by ~7% in FY24e and ~5% in FY25e. On this basis, we upgrade our rating from Sell to Neutral and lift our target price to $61.00," the analysts said

Wesfarmers is experiencing significant investor enthusiasm, with its stock opening 1.7% higher on the day of its results and closing the session 5.0% higher. It's uncommon for a slow-moving giant like Wesfarmers to see such aggressive buying. Such strong momentum warrants respect, despite overbought conditions.

Wesfarmers 12-month price chart (Source: Market Index)

Goodman Group is another reporting season winner, which delivered a robust set of numbers for the first-half and upgraded its full-year guidance for a 10th consecutive year.

"The earnings upgrade reinforces the growth story which investors will receive positively. Focus will be on continued growth from industrial portfolio and the scale of the data centre opportunity which has been upgraded to 4GW," the analysts said in a note last week.

"Data centres make up 37% of the development WIP and the global power bank has expanded to 4GW which increases the scale and duration of the work in progress development pipeline in our view."

Citi retained a Buy rating but lowered its target price to $25.50 due to valuation concerns. Goodman shares have started to ease on Monday, down 2.8% to $27.80 in afternoon trade.

Goodman Group 12-month price chart (Source: Market Index)