For investors who focus on momentum trading, three industrial stocks are currently flashing overbought signals that could indicate an impending price correction. The Relative Strength Index (RSI), a key momentum indicator, is a valuable tool for evaluating whether a stock is overbought or oversold. When the RSI surpasses the critical level of 70, it often suggests that a stock may be overpriced and due for a pullback.
Let’s dive into the three industrial stocks that are currently displaying overbought conditions based on their RSI readings:
1. Redwire Corp (RDW)
Redwire Corp (RDW) has experienced a notable 34% surge in just five days, hitting a 52-week high of $10.50. This surge follows the company’s third-quarter earnings report, which unfortunately missed analyst expectations. However, Redwire has emphasized its mergers and acquisitions (M&A) strategy, including the acquisition of Hera Systems to expand its spacecraft portfolio. Despite the positive M&A developments, the stock’s RSI is at a concerning 81.89, signaling potential overbought conditions and a possible correction in the short term.
2. American Superconductor Corporation (AMSC)
American Superconductor Corporation (AMSC) has also seen a 35% increase in its stock price over the last five days, reaching a 52-week high of $37.00. The stock gained momentum following better-than-expected quarterly earnings, with a 60% revenue growth compared to the previous year. However, with an RSI of 80.60, AMSC is now in overbought territory, suggesting that its recent rally might be due for a pause or correction.
3. Graham Corp (GHM)
Graham Corp (GHM) has surged 46% in the past week, hitting a 52-week high of $41.19. This jump follows strong second-quarter earnings and an increase in FY25 gross margin guidance, reflecting the company’s commitment to improving operational efficiency and expanding into higher-margin sectors. However, with an RSI of 85.02, Graham Corp joins the ranks of overbought stocks, raising the possibility of a short-term price correction.
What Do Overbought RSI Signals Mean for Investors?
These three industrial stocks—Redwire Corp (RDW), American Superconductor (AMSC), and Graham Corp (GHM)—have all shown impressive momentum, with their stock prices soaring in recent weeks. However, their elevated RSI values indicate that they may be overbought, potentially leading to a price correction. For momentum investors, it’s crucial to stay vigilant and consider the risks of chasing stocks with high RSI readings. A potential pullback might present buying opportunities for the long term, but in the short term, caution could be warranted.
