Take Profits Now: 3 Overbought Stocks Primed for a Pullback

Key Points

• Q2 earnings have overall been strong, and some formerly downtrodden stocks have rallied to new highs.
• Determining when to take profits on winning stocks is always tricky, which is why investors use technical analysis to spot shifting trends.
• These three stocks are flashing technical warning signs, indicating it might be time to take some gains off the table.

One of investors' most challenging questions is when to sell a winning stock. No one ever went broke taking profits, but exiting a high-flying stock too early can cause FOMO and create the temptation to chase. On the other hand, high-flying stocks eventually get too close to the sun, and it’s preferable to take profits before this Icarus moment.

Traders often use technical indicators to spot changes in momentum before prices can react, and today, we’ll examine three stocks sending signals that it might be time to hit the cash register.

Technical Signals Can Help Identify Reversals Preemptively

Technical analysis can help predict short-term price movements in ways that fundamental metrics cannot. Long-term stock price trends (usually) depend on revenue and profit, but short-term prices are a mix of sentiment, volume, and randomness. 

You’ll never know exactly why a stock drops 10% in a week because a million investors can all have a million different goals. But you can try to predict when it will happen using indicators like the Relative Strength Index (RSI).

The RSI is a momentum indicator designed to detect the strength of a trend and provide hints on when that trend might be headed for a reversal. Swing traders have been using RSI for nearly 50 years now, and it's one of the most commonly used oscillators by those utilizing momentum strategies.

The RSI measures the strength of a trend by comparing the average gains and losses of a security over a 14-day period. These averages are charted on a graph ranging from 0 to 100, with 30 representing the Oversold threshold and 70 representing the Overbought threshold.

An overbought stock is one where a high price hides fading momentum under the surface, which is why short-term traders use it as evidence of a potential pullback.

The RSI measures changes in momentum, which is a very particular metric and shows why the RSI is best used in tandem with other oscillators like the Moving Average Convergence Divergence (MACD) indicator. False signals are common, so always compare the RSI with other indicators like the MACD or 50- and 200-day MAs to confirm or deny your thesis.

3 Stocks Flashing Overbought Warnings

The following three stocks have had a lot of success in 2025, but recently tripped the Overbought signal. Each also has weakening momentum confirmed by another metric, indicating that it might be time to take profits before these stocks get too extended.

Reddit: Blowoff Top Following a Record Run

Shares of Reddit Inc. NYSE: RDDT began trading last year on March 21, and closed that day at about $50 per share. Within a year, the stock had more than quadrupled to $224, but this was no meme stock.

Strong earnings and investors' enthusiasm have boosted the stock, and these numbers remain solid.

During its Q2 2025 report, Reddit notched 45 cents per share in earnings and just a tick under $500 million in revenue.

Both figures handily blew away expectations, and revenue grew 78% year-over-year (YOY).

Shares surged following the report, but now the momentum appears to be waning after a 121% gain in just three months. The RSI has flashed an Overbought signal twice this month, and now the MACD is also forming a bearish cross, confirming the softening uptrend.

A move back into the post-Liberation Day trading range wouldn’t be surprising for RDDT shares here.

Altria Group: Unsustainable Momentum for a Defensive Stock

Investors aren’t usually looking for outsized stock price growth when buying shares of Dividend Aristocrats like Altria Group Inc. NYSE: MO.

But economic and geopolitical uncertainty have pushed the stock up nearly 30% year-to-date (YTD), and shares are up 13% in the last month alone.

During this run, the stock has hugged its 50-day moving average tightly, but now shares have ripped more than a standard deviation above that support level, an usual occurrence for a consumer staples stock.

As you might have guessed, this recent surge has triggered an Overbought reading on the RSI, which is the first time the 70 level has been breached since December 2024.

The stock pulled back about 10% during that last episode before finding support at the 200-day MA. This time, the RSI has drifted above 80, and a pullback toward the 50-day MA is a concern.

Generac: Investors Cashing Out Despite Strong Earnings

Generac Holdings Inc. NYSE: GNRC has a similar story to Reddit; strong earnings have created a blowoff top, prompting investors to anticipate a slowdown.

The company released Q2 2025 earnings before the market opened on July 30, posting a strong top and bottom line beat while increasing guidance on the lower bound of its adjusted EBITDA margin.

The stock accelerated above $200 in the weeks following the report, but now momentum is teetering as the RSI triggers an Oversold signal and the MACD forms a bearish crossover.

Volume has been light in recent sessions, and it appears investors are cashing in their gains with no upcoming catalysts on the horizon.