## 4 Overbought Stocks in Consumer Discretionary Sector: Warning Signs for Momentum Investors
As of October 21, 2024, four stocks in the consumer discretionary sector are flashing a potential warning for momentum investors. These stocks, Nordstrom (JWN), Toll Brothers (TOL), Autoliv (ALV), and McDonald’s (MCD), have all experienced significant price gains recently, pushing their Relative Strength Index (RSI) above 70. This level is often considered a signal of overbought conditions, suggesting a potential pullback in the near future.
The RSI is a momentum indicator that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the market. It compares a stock’s strength on days when prices go up to its strength on days when prices go down. When compared to a stock’s price action, it can give traders a better sense of how a stock may perform in the short term.
Here’s a closer look at each stock and the factors contributing to their overbought status:
Nordstrom (JWN):
*
RSI Value:
76.29*
Price Action:
Nordstrom shares gained 0.9% on Friday, closing at $24.67. The stock has risen around 10% in the past five days, reaching a 52-week high of $24.93.*
Analyst Sentiment:
Keybanc analyst Ashley Owens downgraded Nordstrom from Overweight to Sector Weight on September 26.Toll Brothers (TOL):
*
RSI Value:
72.41*
Price Action:
Toll Brothers shares rose 1.9% on Friday, closing at $159.58. The stock has gained around 6% over the past five days and has a 52-week high of $160.12.*
Analyst Sentiment:
Oppenheimer analyst Tyler Batory maintained Toll Brothers with an Outperform rating and raised the price target from $168 to $189 on October 2.Autoliv (ALV):
*
RSI Value:
70.49*
Price Action:
Autoliv shares gained 6% on Friday, closing at $99.52. The stock has risen around 6% over the past five days and has a 52-week high of $129.38.*
Recent News:
Autoliv reported better-than-expected third-quarter sales results on October 18, despite a challenging global automotive market. The company outperformed light vehicle production growth, achieving almost unchanged sales and operating income.McDonald’s (MCD):
*
RSI Value:
82.85*
Price Action:
McDonald’s shares gained 0.6% on Friday, closing at $316.56. The stock has jumped around 6% over the past month and has a 52-week high of $317.18.*
Analyst Sentiment:
TD Cowen analyst Andrew Charles maintained McDonald’s with a Hold rating and raised the price target from $280 to $300 on October 16.While these stocks have experienced positive momentum, their high RSI values suggest that they may be susceptible to a correction in the near term. Momentum investors should carefully consider the potential risks associated with these overbought conditions before making any investment decisions. It’s always advisable to conduct thorough research and consult with a financial advisor before making any investment choices.
