As an investor, one of my top criteria in making trading decisions hinges on the momentum of a stock. Perhaps you too find the momentum as a key determinant in your investment strategy. If you are wondering what momentum is, let me break it down for you a bit. In financial lingo, momentum refers to the rate of acceleration of a stock’s price or volume. Tracking a stock’s momentum can certainly be remarkably helpful in forecasting potential price movements.
For those of us who retain a keen eye on the consumer staples sector, as of Jan. 17, 2024, there are a few stocks flashing some noteworthy warnings. Now, before we dive into these stocks, let’s understand a very crucial tool we use to track stock momentum – the RSI or the Relative Strength Index. Simply put, it measures a stock’s strength based on its recent price changes. Any asset that has an RSI above 70 is generally considered overbought, which could imply that the stock may soon witness a price correction.
So, let’s jump into the overbought players in the consumer staples sector who have their RSI values shooting over the 70 mark.
Coca-Cola Consolidated (COKE) has appeared on my radar recently. Despite delivering robust quarterly sales results on November 1, 2023, and its stock price incrementing around 5% within a month, Coca-Cola Consolidated currently enjoys an RSI score of 71.05. The stock took an infinitesimal dip of 0.1% to close at $909.20 recently.
Another potential concern is Nomad Foods Limited (NOMD). Presenting an impressive RSI of 73.36, Nomad Foods rode the wave of positive momentum after unveiling their better-than-expected third-quarter financial results and announcing a revised FY23 guidance on November 9, 2023. Nomad had successfully maintained organic sales momentum, thanks to their dynamic campaign activities and in-store promotional strategies. However, increasingly positive momentum can sometimes signal a potential downturn.
Lastly, let’s take a look at Natural Health Trends Corp. (NHTC). Consistently exhibiting growth despite global economic challenges, they flaunted an increased quarterly EPS as of November 1, 2023. NHTC managed to match the previous year’s order volumes in a market where Chinese consumers had restrained spending habits. However, amidst these favourable positions, NHTC presents an RSI of 75.44, a clear overbought indication.
In the volatile world of stocks, momentum, no doubt, brings along a great amount of magnetism. However, from an investor’s perspective, it is indispensable to scrutinize excessively positive momentum as it could be a precursor to a potential correction. While Coca-Cola Consolidated, Nomad Foods, and Natural Health Trends Corp. are currently performing well, their high RSIs might suggest that a weakening in the price is imminent. As investors, it pays to stay vigilant. Happy investing!