Several software companies could be due for a pullback after the stock market’s roaring rally this week, fueled by President-elect Donald Trump’s election victory as well as robust quarterly earnings reports. Major U.S. indexes are on track for major wins this month, with the S & P 500 up roughly 5% and the 30-stock Dow Jones Industrial Average higher by 5.3%, putting both on track for their best gain in a year. The Nasdaq has jumped 6.4% so far in November. Investors are buoyed by the prospect of less government regulation of business, more deal-making and proposed tax cuts under a second Trump administration. But amid these bullish moves and renewed market enthusiasm, shares of some companies that have raced ahead this month could be due for a pullback according to one popular market yardstick. CNBC Pro screened for stocks that are considered technically overbought using their 14-day relative strength index, or RSI, a momentum indicator used in technical analysis that measures the speed and magnitude of a stock price. Companies with a 14-day RSI higher than 70 are generally regarded as overbought, signaling a potential pullback ahead, while a 14-day RSI below 30 suggests a stock is oversold and may be poised for a bounce higher. Shares of video game makers Take-Two Interactive Software and Electronic Arts are two of the stocks that are technically overbought right now, according to the analysis. Take-Two shares added more than 8% this week on the back of better-than-expected quarterly results. The company reported $1.47 billion in revenue in its fiscal second quarter, topping analysts’ consensus estimate of $1.43 billion, according to LSEG. Several brokers adjusted their price targets on Take-Two after its earnings results. Morgan Stanley kept an overweight rating while lifting its target by $15 to $200, saying the company “continued showing strong results, particularly in mobile, as the focus remains on [Grand Theft Auto] the pipeline.” That suggests 11.6% potential upside. Take-Two’s RSI is nearly 84.8, however, suggesting the stock has risen too far, too fast, and may prove vulnerable to a downdraft. Electronic Arts, another software company, has an RSI even higher, at about 85.2. The stock is up 5% this month, after its second-quarter net bookings came in better than expected and set a quarterly record. Analysts were enthused by revenue and strong execution from the company’s sports portfolio, especially college football, and its recent Dragon Age: The Veilguard video game launch. The most overbought stock this week was human capital management software company Dayforce, with an RSI of 92.4. The stock was also considered overbought in late October. Shares are up more than 33% over the past month and hit a new 52-week high on Friday. Other stocks that could be due for a pullback are Paycom Software and pharmaceutical companies Incyte and Gilead Sciences . In addition, take a look at the market’s most oversold names from our CNBC Pro screener: Packaged food and consumer goods companies General Mills , Coca-Cola and Keurig Dr Pepper are now considered oversold. Consumer staples has been one of the slower-growing sectors this year, and is down 1.7% this quarter. But higher prices and expectations of normalizing pricing, which helped Coke guide its organic revenue growth this year to the high end of a prior forecast, could lead the stocks higher. Other oversold stocks include power generation company AES , as well as radio frequency equipment maker Qorvo and Regeneron Pharmaceuticals — the latter two of which were also oversold the previous week.
