As the S&P 500 hits record highs, some of its stocks have crossed into overbought territory.
Cigna, Gap, Walgreens, Discovery and Tyson Foods all trade above 70 on their relative strength indexes, a momentum measure that signals how overextended a stock has become.
Cigna, up 16% this year, may be overbought by relative strength standards, but TradingAnalysis.com founder Todd Gordon says it looks to have more room to run.
“I looked at the chart, it actually looks very solid. It looks like this is just getting started. It’s only trading 12 times next year’s earnings, got a 1.6% yield and they had a strong investors day,” Gordon told CNBC’s “Trading Nation” on Tuesday.
“There’s a massive resistance zone around $225. … It’s looking like it just broke out,” Gordon said.
Stocks like Cigna and Walgreens that look overbought have been driven up for a reason – their fundamental story is strong, said Gina Sanchez, CEO of Chantico Global and chief market strategist at Lido Advisors. Cigna, for example, is benefiting from increased health-care demand.
One of those stocks appears weaker than the rest, though, she said.
“You look at a name like Gap, for example, where yes, you have a good story, you have a story where you have increasing demand in some of their stores, you have them looking at cutting back on some of the stores in Europe and so as they’re doing that the fundamental story stacks up but the price doesn’t make any sense. It’s totally priced in,” Sanchez said during the same interview.
Gap shares have spiked 54% so far this year. They are up more than 400% since last March’s lows.
“They are trading right now at 23 times forward earnings when you’re looking at a company that traditionally trades at 10 times, so that’s really pricey and that’s one of the things you have to be really careful of,” said Sanchez.
