Overbought Stocks in Consumer Discretionary Sector: YUMC, TCOM, and EVRI Signal Caution
The consumer discretionary sector has been heating up, but for investors who rely on momentum indicators, three stocks are flashing a warning sign: overbought. The Relative Strength Index (RSI) is a popular momentum indicator that gauges a stock’s strength on up days versus down days. An RSI above 70 often signals an overbought condition, suggesting a potential short-term correction is in order.
Let’s take a closer look at these three stocks:
Yum China Holdings Inc (YUMC)
Yum China delivered a strong third-quarter performance, exceeding both earnings and revenue expectations. The company’s CEO, Joey Wat, highlighted their successful delivery strategy and growth in new business models like KCOFFEE Cafes and Pizza Hut WOW. The company’s stock rallied, gaining approximately 8% over the past five days. However, with an RSI of 76.25, it’s now officially in overbought territory, meaning a short-term pullback could be on the horizon.
Trip.com Group Ltd (TCOM)
Trip.com, a leading travel services provider, received a bullish initiation from Bernstein analysts, who assigned an “Outperform” rating with a price target of $85. This positive outlook contributed to a 3% stock gain over the past five days. But TCOM’s RSI sits at 70.45, putting it in the overbought zone. While the future outlook remains optimistic, the current RSI suggests investors might see some near-term price consolidation.
Everi Holdings Inc (EVRI)
Everi Holdings is set to be acquired by funds managed by Apollo affiliates for $14.25 per share. This acquisition agreement has boosted the stock’s performance, though at a slower pace than the other two. However, EVRI’s RSI is currently the highest at 80.82, indicating a significant degree of overbought conditions. While the acquisition news is positive, investors should be aware of the potential for a correction in the short term.
What does this mean for investors?
Investors who are focused on momentum strategies might want to proceed with caution when it comes to these three stocks. While their recent performance has been impressive, the overbought signals suggest that a short-term price pullback could be in the cards. However, it’s important to remember that the RSI is just one indicator, and it shouldn’t be the sole basis for investment decisions. Always conduct thorough research and consider other factors before making any investment choices.
