Rethinking “overbought”

Virtually all investors and traders have thought, at one time or another, “This stock couldn’t possibly go any higher (or lower).”

It’s probable that plenty of market watchers have expressed similar sentiments about Sandisk (SNDK) in recent weeks—or even months. The computer memory and storage stock was already up more than 360% for the year before it released earnings after the close on April 30. Shares jumped 28% over the next three trading days, running the year-to-date gain to 492%:

As of Tuesday, in fact, SNDK was up more than 4,000% year over year. The stock had also overshot the average 12-month Street analyst target of $1,383.75 (the highest individual forecast was $2,000, the lowest was $1,000).¹

While such moves may strike contrarians as unsustainable, the same argument could have been made many times over the past several months, depending on a trader’s frame of reference and choice of metric. For example, the bottom of the chart shows the 14-day Relative Strength Index (RSI), a commonly referenced technical indicator intended to highlight potential “overbought” and “oversold” levels.

The problem: When a stock is in a strong uptrend—like SNDK’s—technical indicators and other momentum gauges tend to issue overbought signals early and often, as was the case here. The RSI crossed above 80 (its default overbought threshold) on Tuesday, which may have appeared to be a timely signal, given the stock’s intraday decline on Wednesday (it ultimately closed marginally higher). But the chart highlights two other overbought signals in January that were followed by immediate (and continued) upside.

And those weren’t the only premature overbought signals—the RSI generated others in September, October and November 2025. In fact, a trader who bought SNDK on its first day of trading (February 13, 2025)² and sold it the first time the 14-day RSI hit the default overbought threshold of 80 on September 4 would have logged an admirable 74% gain—and, possibly, missed out on the stock’s 2,154% increase since then.

All trends eventually run their course. Whenever SNDK’s rally ends, or is significantly interrupted, it’s quite likely the highs will be accompanied by overbought signals from the RSI and other momentum indicators. But correlation isn’t necessarily causation. As this example shows, such signals can indicate a trend is ending long before prices finally decide to turn.

Market Mover Update: June WTI crude oil futures (CLM6) fell 7% to $95.08 on Wednesday—the first time the contract closed below $100 since April 28.

Cytokinetics (CYTK) pulled back Wednesday after breaking out of its multi-month trading range with a 16.7% rally on Tuesday (see “Options heads-up”).

Today’s numbers include (all times ET): Job Cuts (5:30 a.m.), Weekly Jobless Claims (8:30 a.m.), Productivity and Costs  (8:30 a.m.), Construction Spending (10 a.m.), EIA Natural Gas Report (10:30 a.m.).

Today’s earnings include: Airbnb (ABNB), Bill Holdings (BILL), Coinbase (COIN), CoreWeave (CRWV), Dropbox (DBX), Shift4 Payments (FOUR), JFrog (FROG), Howard Hughes (HHH), Lyft (LYFT), McDonald’s (MCD), Rocket Lab (RKLB), NuScale Power (SMR), Tapestry (TPR) Wynn Resorts (WYNN).

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¹ TipRanks. Sandisk (SNDK) Stock Forecast & Price Target. 5/6/26.
² SNDK first traded publicly from 2009 to 2016, at which point it was purchased by Western Digital (WDC)—which spun it off again in February of last year.