What Is an Overbought Stock and Does 2023 Have Any?
Key takeaways
- Overbought stocks are when a stock is too popular for its own good and the share price is higher than the company’s worth
- The Relative Strength Index can help determine if a stock is overbought, but there’s no way of telling when the peak will hit before the correction
- A classic example of overbought stocks this year is Big Tech, which have been buoyed by the generative AI boom
Overbought stocks: great when you’re at the peak, not so great once you feel the pain of a correction. It can happen to any company’s share price, but thankfully there are ways to see which stocks are in overbought territory. Let’s explain the process and some examples of overbought stocks in 2023.
Realistically, you want the opposite of an overbought stock in your portfolio. AI can help you achieve that with Q.ai’s Value Vault Kit, which focuses on the companies that are bargains on the stock market. An AI algorithm sifting through the data is the secret ingredient which helps you build wealth without the upfront work.
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What is an overbought stock?
An overbought stock is when there’s been so much buying of a company’s stock that its price rises to a level far over its actual intrinsic value. An overbought stock usually results from rampant optimism from investors on a particular company’s outlook, brought on by a string of good news.
Some indicators, like the Relative Strength Index (RSI), can give some clue as to when a stock is overbought. On the RSI scale, a value of over 70 usually means the stock is in overbought waters.
But beware — overbought usually means there’s a price correction on the way. It’s just hard to tell when that might be, as an overbought stock can keep heading upwards. Keeps things fun, right?
Current examples of overbought stock
Any stock can become overbought, but in 2023 we’re seeing it with the only sector that’s flying despite economic headwinds: the tech market.
Wondering what string of good news could cause Big Tech stocks to be overbought? Of course it’s generative AI. The likes of Microsoft, Google and Nvidia have been falling over themselves to reveal AI product after AI product, with the stocks soaring as a result.
It’s prompted some investors to believe the biggest contributors to the S&P 500 are overbought — Nvidia became the fifth-ever trillion-dollar company a couple of weeks ago, while Google and Microsoft have both neared gains of 40% — but few seem to believe they’re near the peak.
Another stock often cited as overbought is Tesla, which seems to go up and down as much as CEO Elon Musk tweets. Tesla’s been on an epic winning streak this month, soaring over 52% in the time period, but investing.com puts Tesla at a 78.755 score — well into overbought territory.
The bottom line
An overbought stock can happen anytime, anywhere — and it’s basically impossible to work out when the share price might correct again. That’s why it’s always best to take a diversified approach to your investing strategy, so you’re not chasing gains at a few companies. AI investing makes the whole thing even more straightforward.
The big players in the tech market might be overbought, but you can use AI to find the better value companies with Q.ai’s Value Vault Kit. An AI algorithm hunts down the companies with relatively low valuations and solid balance sheets by sifting through reams of data, then realigns the Kit’s holdings to help you maximize your investment.
Download Q.ai today for access to AI-powered investment strategies.
