The 10 most overbought and oversold ASX 200 stocks – Week 26

The most oversold stocks on the ASX 200 continues to read like a graveyard of struggling lithium and iron ore stocks, burdened by heavy capex commitments and declining commodity prices.

The 14-day Relative Strength Index is a momentum indicator that measures the magnitude and speed of recent price changes to assess whether or not a stock is overbought or oversold.

An RSI of 70 or above is considered to be overbought, which means the stock is rising too quickly and likely to experience a pullback. Meanwhile, an RSI of 30 or below is considered to be oversold, which means the stock is falling too quickly and is likely to experience a rebound.

Based on this indicator, Strike Energy is the most overbought stock on the ASX 200 with an RSI of 76.

Most Overbought ASX 200 Stocks

Target price' is an aggregate of broker target prices from Refinitiv. Data as of the close on Friday, 28 June 2024

Strike Energy rallied almost 25% last week after a series of announcements including:

• South Erregulla reserves update

• Application submission to the Australian Electricity Market Operator (AEMO) for the award of capacity credits and network access

• Walyering-7 flow test update

The stock is currently down 12% on Monday, with Macquarie hosing down last week's outperformance and announcements.

"We've been surprised to see such a positive response to what was a larger South Erregulla reserve downgrade (65% to 45PJ) than what we think the market expected - suggesting there is excessive optimism around the timeline and value of the power project," the analysts said in a note on Monday.

An Underperform rating was maintained along with a 22 cent target price.

Most Oversold ASX 200 Stocks

Target price' is an aggregate of broker target prices from Refinitiv. Data as of the close on Friday, 28 June 2024

Mineral Resources recently hit a concerning low, with its RSI dropping to 12 two weeks ago — a level not seen since the 2008 Global Financial Crisis. While the stock has shown some signs of recovery with a few positive sessions, bringing its RSI up to 18, it still ended last week down 3.3%.

The stock has been crushed by several factors including falling iron ore prices (down around 30% in the March quarter), downward spiraling lithium prices and a heavy capex outlook. You can read my full breakdown of how MinRes has historically performed after trading at extreme oversold levels here.

In summary, while short-term returns remain volatile, the probability of positive returns improves significantly over longer periods. However, Mineral Resources faces a unique challenge: This is the company's first time navigating an unprecedented capital expenditure cycle with elevated debt levels. Such financial burdens typically weigh on a stock's performance — until suddenly, they don't.

To analyse the forward returns from oversold conditions, we examined the first instance of RSI below 26 in each month, which yielded 16 data points | Source: Market Index