These are the most overbought and oversold ASX 200 stocks – Week 4

A bidding war, soaring energy prices and renewed interest in gold were the key themes that propped select stocks and sectors into overbought territory last week. Meanwhile, last year's runners like HMC Capital, Netwealth and Technology One have experienced sharp declines from recent highs, slumping into oversold territory.

RSIs Explained

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. In this weekly series, we observe some of the market's most overbought and oversold stocks.

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.

Most Overbought ASX 200 Stocks

Data as at Friday, 17 January 2025

Key takeaways:

• Insignia Financial has emerged as a prime takeover target, with its shares surging nearly 50% over the past month amid an escalating bidding war between Bain Capital and CC Capital. The offer price has increased substantially from the initial $4.00 per share on December 12, 2024, to $4.60 as of January 17, 2024. The company has now agreed to grant CC Capital limited access to non-public information on a non-exclusive basis.

• Gold prices have clawed back above US$2,700 an ounce, rallying around 3% from mid-December lows of US$2,580. The strong US dollar has amplified returns for Australian investors, pushing the local gold price to a record A$4,365. This favorable environment has propelled many gold mining stocks 10-15% higher in the past week.

• Gold Road Resources stands out in the sector, with Macquarie analysts viewing the company as their top mid-cap gold pick as of January 13. The company's 17.8% stake in De Grey Mining, recently valued at approximately $800 million following Northern Star Resources' all-scrip takeover offer at a 37.1% premium, adds significant value. Gold Road's attractive valuation at 3x EV/EBITDA, compared to the sector average of over 5x, coupled with its strategic landholdings adjacent to De Grey, positions it favorably.

• Oil prices have surged approximately 10% over the past three weeks, driven by Russian sanctions, lower US inventory levels, and positive Chinese economic data. This has triggered a V-shaped recovery in energy stocks, benefiting companies like Santos and Beach Energy.

Most Oversold ASX 200 Stocks

Data as at Friday, 17 January 2025

Key takeaways:

• NRW Holdings experienced significant volatility following CFO Richard Simons' resignation on January 13, with shares dropping 9.5% in a single day. Despite a brief recovery, the stock remains near its recent lows.

• Premier Investments has faced challenges, with shares plunging 23% following disappointing first-half FY25 guidance. The company projected total sales of $855-865 million and retail underlying EBIT of $160-165 million, missing consensus estimates by 3% and 20% respectively. However, the stock has shown signs of recovery with a three-day winning streak, supported by analysts' confidence in the company's track record and strong balance sheet.

• Previous market leaders from 2024, including HMC Capital, Netwealth, Technology One, and Hub24, have experienced significant pullbacks. Despite Technology One's impressive 88% gain over the past year, analysts are struggling to see how valuations can push any higher. "We continue to like the medium-term story, but see the share price as reflecting continued upside to both margins and sustained ARR improvements," Macquarie analysts said in a note in late November.