As of August 28, 2024, two stocks in the information technology sector are flashing warning signs for investors who prioritize momentum in their trading decisions. Ambarella (AMBA) and Box (BOX) are exhibiting high Relative Strength Index (RSI) values, suggesting they may be overbought.
The RSI is a momentum indicator that compares a stock’s strength during periods of price increases to its strength during periods of price declines. A stock with an RSI above 70 is generally considered overbought, indicating potential for a short-term price correction.
Ambarella Inc (AMBA)
Ambarella, a provider of edge AI inference products, recently reported better-than-expected second-quarter results, exceeding both adjusted earnings per share (EPS) and sales estimates. Fermi Wang, the company’s CEO, stated that their edge AI inference products achieved record revenue in the second quarter and they anticipate double-digit sequential growth in total revenue for the third quarter. This positive news drove an 8% increase in Ambarella’s stock price over the past five days, reaching a 52-week high of $76.36. However, its current RSI value of 72.06 suggests that the stock is overbought, potentially making it risky for momentum investors.
Box Inc (BOX)
Box, a cloud content management platform provider, also exceeded expectations with its second-quarter financial results and issued FY25 guidance above estimates. Aaron Levie, Box’s co-founder and CEO, highlighted their focus on delivering an intelligent content management platform. The company’s stock gained approximately 4% over the past month and has a 52-week high of $30.94. Despite the positive performance, Box’s RSI value currently stands at 75.29, indicating a significant overbought condition.
These high RSI values for both Ambarella and Box suggest that these stocks may be due for a short-term correction. Momentum traders, who capitalize on strong price movements, should exercise caution when considering these stocks given their current overbought status.
