The market has made a significant rally after flirting with the possibility of re-entering the COVID-19 valley of 2020. Bulls have driven prices up. So, we looked for companies that traveled deep inside overbought territory as defined by a Relative Strength Index (RSI) index above 70.
As ex-President Barack Obama might say, some stock prices may have gotten over their skis and could be ready to fall i.e., profit taking or short candidates.
Cirrus Logic, Inc. (CRUS) could be on the verge of catching an edge, sending it tumbling down the slope of a potentially elevated price. Cirrus Logic is a fabless semiconductor company that provides low-power and high-precision mixed-signal processing solutions in the United States and internationally.
CRUS’ stock price could be near the top of its mountain with an RSI reading of 77 as we type. The semiconductor stock reached these heights every once in a while, in fact three times since late 2019; this being the third.
The previous two times, shares fell dramatically afterwards. In early 2020, CRUS plummeted from the low $90s to the upper $40s in about three-and-a-half months – OUCH. In early 2021, Cirrus Logic briefly topped 70 on the RSI meter after topping $100. By April, Wall Street shaved off roughly 30%, knocking the stock into the low $70s.
Here we go again. It’s early in the year and CRUS went vertical, busting triple-digits for the first time since early 2021, when shares were last overpriced. While the past is not perfect, it can be a helpful guide and alert investors to pay careful attention.
Cirrus Logic, Inc. (CRUS) could stay elevated in the high RSI clouds for an extended period, but once the price starts to descend, recent history suggests that it could be ripe for a significant haircut.
Shorting is only for the most aggressive investors who can afford to lose lots and lots of money in very short periods of time.