After the near 800-point rally in the S&P BSE Sensex over the past two sessions, there are some stocks that appear over-bought on the technical charts as per two broad indicators - the Stochastic and the Relative Strength Index (RSI). Most traders view such stocks for booking profit or a fresh trade.
Relative Strength Index (RSI) is a momentum oscillator that identifies overbought and oversold conditions base on the changes in recent prices. It analyses the strength and important levels relevant to the stock price. Analysts, truly studying RSI are able to gauge the trend of a stock, profit booking levels and reversals points. RSI has a reading from 0 to 100 wherein stocks crossing above 70 levels are considered as overbought and below 30 as oversold.
Stochastic developed by George C. Lane genuinely diagnose the speed and the momentum of the stock price. It calculates the price close, based on the high and low range for a certain number of periods.
Besides analysing overbought and oversold conditions, it also attempts to identify the change in direction, beforehand the change in price. Herein, reading above 80 is considered as overbought and below 20 as oversold.
The overbought scenario highlights the bulls getting exhausted and bears getting geared up. Technical indicators entering such scenario inhabit a slower rise in prices and a reversal with profit booking. Aggressive traders start to pull back their trades, hold positions for a stock to retrace their respective support levels to foreshadow a trend. Investors look at profit booking and explore stocks in oversold territory.
A stock entering overbought territory loses participation and volumes tend to deteriorate as trading sessions progress. However, few stocks are exceptional but are in fewer numbers. There have been instances where a stock made a positive crossover in the overbought zone and thereafter rallied strongly.
| 14 Stocks in overbought condition on both RSI and Stochastic indicators |
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| ACC Ltd. |
| Ambuja Cements Ltd. |
| Bajaj Auto Ltd. |
| Bajaj Finserv Ltd. |
| Arvind Ltd |
| Bharat Petroleum Corporation Ltd. |
| Century Textile and Industries Ltd |
| DCB Bank Ltd. |
| Escorts Ltd. |
| Bharat Financial Inclusion Ltd |
| ICICI Bank Ltd. |
| Indian Bank |
| ITC Ltd. |
| L&T Finance Holdings Ltd. |