MW Alphabet's stock is the most overbought ever by one measure. Is that a problem?
By Tomi Kilgore
Overbought doesn't mean over, as it can mean the trend and momentum are strongly to the upside. But that doesn't mean new investors should rush to buy.
Alphabet's stock is technically very overbought by a number of measures, but that doesn't mean investors should rush to sell. But maybe they should wait a while before buying more.
Alphabet's stock has rallied over the past several months, and calling it technically overbought is an understatement. But is that actually a bad thing for those who already own the stock?
There's always a fear on Wall Street that the faster something rises, the faster it will fall. But when a stock has an overbought condition, the technical outlook isn't necessarily as bad as it sounds. It doesn't actually mean a stock was bought too much; it just means it has rallied further and faster relative to historical behaviors.
There are a number of ways to gauge whether a stock is overbought. For Alphabet's stock $(GOOGL)$ $(GOOG)$, David Morrison, senior market analyst at Trade Nation, likes using the Moving Average Convergence/Divergence indicator. He said the MACD is "incredibly useful" because it combines moving averages in a way that provides measures of both trend and momentum.
Read more about the MACD indicator.
Also read: Alphabet gets closer to $4 trillion as Morgan Stanley puts a bit number around its chip potential.
"Looking at the daily, weekly and monthly MACDs, Alphabet is extremely overbought relative to history," Morrison wrote in emailed comments to MarketWatch. "The MACDs have never been this high before - not even close."
But there's a saying on Wall Street: Overbought doesn't mean over.
Rather than act as a sell signal, Morrison said the overbought MACD over multiple time frames means the trend and momentum in Alphabet's stock price are strongly to the upside. And that could continue for a while.
"There's no doubt that markets can remain 'overbought/'oversold' for long period of time," Morrison said. "It doesn't indicate that the price is suddenly about to reverse direction."
Another way to gauge how much the stock has outperformed over time, relative to history, is to see how the stock has climbed above its 200-day moving average, which many use as a long-term trend tracker.
On Tuesday, Alphabet's stock closed 61.2% above its 200-DMA, which is the most since it closed 61.7% above it on June 7, 2005. In comparison, the average distance the stock has been above the 200-DMA is about 8.5%, according to available FactSet data.
What happened back then? One month later, on July 7, 2005, the stock was 0.8% higher, and it was just 0.5% higher three months later. But six months later, the stock was 38% higher.
Some chart watchers even consider some overbought readings as depicting an ability rather than a condition - the ability to become overbought is a sign of underlying strength. When a rally can no longer produce an overbought reading, investors should worry.
Perhaps the most widely used indicators to gauge overbought conditions is the momentum indicator called the Relative Strength Index $(RSI)$, which compares the magnitude of gains over a specific time period against the magnitude of losses. When RSI gets above 70, the charted instrument is seen as being overbought.
Since July 18, 2025, the day before Alphabet's stock first became overbought during the current run-up, it has soared more than 72%, something it hasn't done over a similar time period since July 2005. And during the 92 sessions from July 18 through Wednesday, RSI has been above 70 for 47 sessions.
So yes, Alphabet's stock has rallied as far and as fast as it ever has. That doesn't mean it will be over soon, but it also doesn't mean new investors should rush to buy.
Morrison said there are certainly compelling reasons to own the stock, but despite the positive trend, there are risks to committing new money at current prices.
"I would argue that it may be sensible to hold off for now," Morrison wrote. "The risk/reward is too one-sided and there's a good chance buyers may be able to pick up the stock in more favorable conditions."
As the chart above shows, a stock doesn't have to sell off sharply for overbought conditions to be worked off, as "it can simply consolidate for a period," Morrison wrote.
For example, back in 2005, the stock was little changed for about three months, during which RSI fell as slowly as 34 - the stock was down 6.5% from the June 7 close at that time - before recovering. By Sept. 12, 2005, RSI was back above 70, and the stock was 5.6% higher.
Basically, amid the current technical setup, new buyers - and sellers - could benefit from waiting a little while.
-Tomi Kilgore
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
November 28, 2025 08:29 ET (13:29 GMT)
Copyright (c) 2025 Dow Jones & Company, Inc.
Comments