With the benchmark S&P 500 index continuing to trade down from its summer highs, there are plenty of stocks feeling the worst for wear. It’s easy for a rally to begin, or indeed for an existing one to be pushed higher, when investors are buying, but the exact opposite is true when they’re selling.
With the S&P 500 itself down more than 5% since the start of the month, it won’t be a surprise to learn that some stocks that were already underperforming have been pushed down even further. For those of our readers who love a bargain, that can open up great opportunities. To find these, a stock’s relative strength index (RSI) can be one of the easiest and clearest signals to use. At the risk of over-simplifying it, imagine the RSI as a tool to help you decide if a stock is overbought, and due a pullback or oversold, and due a bounce back.
It works on a scale of 0 to 100. A reading above 70 suggests overbought conditions, and below 30 suggests oversold conditions. With that in mind, here are three well-known stocks, all household names, with RSIs well below 30.
Shares of the airline major have been sliding since July, which is where their post-pandemic rally ran out of steam. Higher fuel costs, the threat of industrial action, and dwindling revenue growth have all combined to send shares down more than 30% in that timeframe. It will be particularly painful for long-term investors who would have been buoyed by the past year's strong traffic numbers but are now looking at their shares trading down towards their Covid lows.
However, the selloff has been steep enough to also send American Airlines RSI down towards lows. It’s currently just around 20, indicating extremely oversold conditions. It’s only come down here a handful of times in the past few years. The most recent was in March 2020, and then it was basically just once a year, stretching back to 2016. While not all of these timestamps signaled the complete reversal of a trend, they did all signal an imminent rally was about to take place, with trough-to-peak gains of between 30-150% following.
There are fundamental headwinds that investors will have to be mindful of with American Airlines, and there are better stocks out there to be buying with a long-term mindset. But from a technical perspective, the signs are pointing towards an aggressive bounce back in the short term, at least.
The shares of ShackBurger HQ have been under pressure since July as well, though for different reasons than American Airlines. It had an earnings report that came in soft against expectations, and its shares are down almost 30% in the past two months.
But the trading activity has been so one way, that is, down, Shake Shack’s RSI is figuratively speaking on the floor. Its current reading of 22 has only been hit on three other occasions since the stock IPO’d in 2016. Average trough-to-peak gains in the stock following each of these occasions was 150%.
In addition to having the technical argument on your side, the team at Northcoast Research has cottoned on to the longer-term buying opportunity opening up as well. They see recent headwinds continuing to dissipate through the rest of the year and had no problem giving shares a price target of $85. That’s pointing to an upside of at least 50% from where they were trading on Tuesday morning.
Boeing shares managed to rally into August before starting their current slide. They’d been adding gains all year, to be fair, with August’s peak just the latest milestone in a rally that dates back eighteen months. But a 20% slide since then has them back where they started the year, with a long string of red days along the way.
The good news is, though, that their current RSI reading of 24 was last seen in May 2022, right before the stock started its multi-month run to last month’s high. Along the way, they tacked on over 100% in value. If this is to be the spot where the bears run out of steam, and the bulls take control once again, it would have a nice ring to it.
The team at Wells Fargo thinks we could be looking at the low soon. Last week, they increased their Boeing allocation in the company’s Signature Picks list, indicating the time could be ripe for bargain hunters to also start backing up the truck.