{"id":14588,"date":"2023-05-27T09:22:16","date_gmt":"2023-05-27T13:22:16","guid":{"rendered":"https:\/\/ifintechworld.com\/investing\/nvidia-stock-is-the-most-overbought-in-18-months-but-that-doesnt-mean-the-rally-is-over\/"},"modified":"2023-05-27T09:22:17","modified_gmt":"2023-05-27T13:22:17","slug":"nvidia-stock-is-the-most-overbought-in-18-months-but-that-doesnt-mean-the-rally-is-over","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=14588","title":{"rendered":"Nvidia stock is the most overbought in 18 months, but that doesn\u2019t mean the rally is over"},"content":{"rendered":"
\n

The monster rally in Nvidia Corp.\u2019s stock following the semiconductor maker\u2019s stunningly bullish revenue outlook has produced the most oversold reading by one widely followed technical metric since just before the previous record close in November 2021.<\/p>\n

But history suggests that overbought doesn\u2019t necessarily mean the rally is over. Although the four other times the stock reached overbought readings as high as they are now did precede pullbacks, three of those pullbacks were short-term in nature, and not enough to derail the longer-term uptrends.<\/p>\n

\n

The stock
\n NVDA,
\n +2.54%<\/bg-quote>
\n climbed 2.3% in afternoon trading toward a record close Friday, a day after rocketing 24.4% following the chip maker\u2019s blowout earnings report.<\/p>\n

Meanwhile, the Relative Strength Index, known by chart watchers as RSI, rose to an 18-month high of 83.64 on Friday.<\/p>\n

The RSI is a momentum indicator that compares the magnitude of recent gains with the magnitude of recent losses. Typically, many believe RSI readings above 70 indicate a stock is overbought, which to chart watchers means it has rallied too far and too fast compared with its historical performance and that investors are likely to cash in some gains.<\/p>\n

Many actually interpret an overbought RSI reading as sign of strength, as the ability to become overbought suggests the charted instrument must be in a bullish trend. (Read Constance Brown\u2019s \u201cTechnical Analysis for the Trading Professional.\u201d)<\/p>\n

Don\u2019t miss<\/strong>: AI stock-market surge underlines this key lesson for traders, RenMac says.<\/p>\n

As the chart below shows, Nvidia\u2019s RSI indicator had crossed above the overbought threshold of 70 multiple times in the past five years, but with the latest foray it has passed the extreme overbought line of 80 just five times.<\/p>\n

<\/p>\n
<\/p>\n
<\/div>\n<\/figure><\/div>\n

The first three times, an 80+ RSI led to short-term pullbacks in the stock:<\/p>\n