How can you tell if a stock is overbought? The most common test is a 14-day Relative Strength Index (RSI) above 70. RSI runs on a scale from 0 to 100, and a reading over 70 means a stock has risen quickly compared with its recent losses. You can consider a stock extremely overbought when its RSI climbs above 80.
The 14-day price chart next to each RSI shows you the move behind the number. A steady climb and a single-day jump can produce the same RSI. A one-day jump is often tied to company news, such as an earnings beat, an analyst upgrade, a raised outlook, or a buyout offer. Broader events can also push many stocks into overbought territory at once, such as a strong economic report, a drop in interest rates, or a rally across a whole sector.
So is a high RSI a warning sign or a sign of strength? It depends on who you ask. Some traders see an overbought stock as one that has risen too far, too fast, and they expect a pullback. Momentum traders see the same reading as proof that buyers are still in control, and they expect the run to continue. Both can be right, which is why RSI works best as a starting point rather than a buy or sell signal on its own.
Overbought is not the same as overvalued. RSI only looks at price. It does not consider earnings, cash flow, or debt. A stock can stay overbought for weeks when the business is improving quickly. Before you treat a high RSI as a reason to sell, check the stock's P/E ratio, its recent news, and its analyst ratings.
Many traders confirm an overbought reading with a second indicator. MACD, which is built from a stock's 12-day and 26-day moving averages, can show whether upward momentum is starting to fade. A stock trading near the upper Bollinger Band with a high RSI is a stronger overbought signal than either one alone. The stochastic oscillator works much like RSI, with readings of 80 or higher pointing to an overbought stock. Candlestick patterns can also hint that buyers are running out of steam.
You can use the filters above the table to focus on a single country, sector, or market cap range. Keep in mind that small stocks that trade only a few shares a day can post extreme RSI readings on small price moves. If you are new to trading on technical signals, try them out with paper trading first, and never trade more than you can afford to lose.
