Microsoft Hits Overbought Territory with RSI at 78.4 Amid Market Turmoil – Here’s What It Means

• Why Is Microsoft’s RSI Raising Red Flags?
• Who Else Joined the Overbought Club?
• Oversold Stocks: Bargains or Traps?
• RSI Explained: Why Traders Watch This Metric
• Market Context: Tariffs and Jobs Data Roil Stocks
• What’s Next for Overbought Tech Stocks?
• FAQ: Your RSI Questions Answered

Microsoft’s stock surged 2% this week despite a broader market selloff, pushing its Relative Strength Index (RSI) to 78.4—deep into overbought territory. While bullish earnings and analyst upgrades fueled the rally, traders warn the chart looks stretched. Meanwhile, defense giant Northrop Grumman and tech players like Western Digital also flashed overbought signals, while healthcare stocks like Centene plunged into oversold lows. Here’s the full breakdown.

Why Is Microsoft’s RSI Raising Red Flags?

Microsoft defied the market’s brutal week—where the S&P 500 dropped 2.4%—by climbing 2% after smashing earnings expectations. Its cloud revenue hit $75 billion for fiscal 2025, up 34% year-over-year, with transparency around Azure growth electrifying investors. But that rally pushed its 14-day RSI to 78.4, well above the 70 threshold that signals overbought conditions. "Anything NEAR 80 means the stock might need to cool off," noted Jeff Schulz of ClearBridge Investments. Goldman Sachs and Bank of America hiked price targets, but the BTCC team cautions that momentum could stall if profit-taking kicks in.

Who Else Joined the Overbought Club?

Northrop Grumman (RSI: 76.1) rode military contract demand to a 2.9% weekly gain, while Generac (RSI: 79.1) and Western Digital (RSI: 74.2) also advanced against the market tide. Northrop’s 25% year-to-date surge reflects geopolitical tensions, but its RSI suggests a pullback risk. Generac’s power systems and Western Digital’s storage tech drew buyers, yet their high RSIs hint at overheated valuations. Data from TradingView shows all three stocks testing resistance levels.

Oversold Stocks: Bargains or Traps?

Healthcare stocks bore the brunt of the selloff. Centene’s RSI cratered to 23.1 after an unexpected Q2 loss triggered an 8.7% weekly drop. Molina Healthcare (RSI: 22.8) followed suit, down 6%. Charter Communications and W.W. Grainger also dipped below RSI 30, entering oversold territory. Historically, such extremes precede rebounds—but with macro uncertainty, the BTCC team advises waiting for confirmation. "Oversold doesn’t always mean ‘buy now,’" one analyst quipped.

RSI Explained: Why Traders Watch This Metric

The Relative Strength Index measures price momentum on a 0-100 scale. Readings above 70 suggest overbought conditions (potential pullback), while below 30 indicates oversold (potential bounce). Microsoft’s 78.4 RSI mirrors its 2021 peak before a 15% correction. That said, strong fundamentals can override technical signals—as Apple proved during its 2023 rally with sustained high RSI levels. Always pair RSI with volume and trend analysis.

Market Context: Tariffs and Jobs Data Roil Stocks

President Trump’s new tariffs and a disappointing July jobs report hammered indexes. The Nasdaq fell 2.2%, while the Dow dropped 2.9%. Microsoft’s divergence highlights its "flight to quality" status, but its RSI now questions how much runway remains. For contrarians, oversold healthcare stocks might offer better risk/reward. As one hedge fund manager told me, "In chaos, RSI is your compass—but don’t ignore the weather."

What’s Next for Overbought Tech Stocks?

Historically, stocks with RSI above 75 face heightened volatility. Microsoft’s case mirrors NVIDIA’s 2024 pattern before its 10% consolidation. Watch for:
1.: Declining buys could signal exhaustion.
2.: Money may Flow from tech to oversold sectors.
3.: Fed policy shifts could accelerate profit-taking.
This article does not constitute investment advice.

FAQ: Your RSI Questions Answered

What does an RSI above 70 mean?

An RSI above 70 typically indicates overbought conditions, suggesting the asset may be due for a pullback or consolidation.

Can a stock stay overbought for long?

Yes—during strong uptrends, stocks can maintain high RSI levels for weeks (e.g., Tesla in late 2023). Fundamentals and momentum matter.

Is Microsoft’s RSI a sell signal?

Not necessarily. While caution is warranted, Microsoft’s cloud growth could justify higher valuations. Monitor for bearish divergence.