3 Hot Stocks Flashing Overbought Signals – Magic Post

As the market continues its record high, several leading themes, including data storage, artificial intelligence, quantum computing and defense, have propelled select stocks to notable highs. However, in the midst of this rampant enthusiasm, some names have become extremely overbought, indicating potential warning signs for near-term investors.

While markets can defy gravity for longer than most people expect, even the strongest trends eventually subside. One of the most reliable metrics to detect potential overextensions is the Relative Strength Index (RSI). It is a momentum indicator that helps identify overbought or oversold conditions. Typically, RSI readings above 70 indicate that a stock may be overbought, while readings in the 80s or 90s often precede short-term pullbacks or consolidations.

Here are three big stocks that are currently trading at extreme RSI levels, suggesting that investors are considering waiting for a reset before pursuing further upside.

IREN Limited: The temperature is rising amid the AI ​​and Bitcoin boom

ERIN LIMITED Nandak: Erinformerly known as Iris Energy, has become one of the top performers in 2025. The company operates data centers powered by renewable energy, and is designed for energy-intensive workloads such as AI training and inference. Benefiting from the dual tailwinds of the AI ​​boom and Bitcoin’s renewed strength, IRN has surged a staggering 488% year-to-date, pushing its market capitalization to nearly $16 billion.

While the long-term narrative of clean, high-performance computing remains compelling, Irene’s short-term setup looks stretched. The Relative Strength Index (RSI) recently rose to 82, and early trading on October 7 pushed that number closer to the upper 80s, into overbought territory.

Technically, this type of momentum is often preceded by a period of cooling or a return to the mean. Investors looking for entry may be better off waiting for a pullback toward the $50 area, where the stock last consolidated. Analysts share a similar view: Despite a Moderate Buy consensus rating, the average price target of $47.73 suggests a downside of ~17% from current levels.

Kratos Defense and Security: Red Hot Space and Defense

Kratos Defense and Security Solutions Nasdaq: KTOS He became one of the most explosive big names in the defense sector. The company designs and delivers advanced systems for national security, ranging from unmanned aerial vehicles to missile defense and directed energy weapons.

The stock is up 280% year to date, driven by excitement surrounding defense innovation and a broader shift into aerospace names, such as Rocket Lab USA. However, after seven consecutive sessions in the green, the KTOS now has an RSI of 87.2, one of the highest readings in the market.

Despite strong fundamentals and better-than-expected second-quarter earnings, valuation metrics are stretched to extremes. The company is trading at a P/E ratio of over 1,000 and a forward P/E ratio of 132, indicating clear signs of overheated sentiment. While the momentum may continue in the short term, a technical pullback appears likely. Traders looking to get in may want to wait for a bounce toward the 20-day moving average near $80, where the stock had previously been stabilizing before its recent breakout.

AeroVironment: The sky is high and the running is hot

Aerofirm Nasdaq:AFAFa leading defense technology company specializing in unmanned aerial systems, precision strike munitions, and scalable power systems, has also joined the list of high-flying companies. The stock is up 155% year to date, pushing its market value toward $20 billion.

Interestingly, the AVAV rise came despite missing Q1 EPS expectations, underscoring how much the current move is driven by momentum rather than fundamentals. The stock now trades at a forward P/E of 85. While analysts are bullish with a Moderate Buy rating, they see a downside of ~11% from current levels based on the consensus price target.

The Relative Strength Index tells a similar story. At 89.3, AVAV is among the most overbought stocks in the entire market. While markets could remain shallow for longer than expected, the potential for a near-term pullback is rising rapidly. A bounce towards $350 or even $300 would provide a healthier setup for long-term investors rather than chasing the current high price.

Eventually, even the strongest stocks need to calm down

These three stocks, IREN, Kratos Defense, and AeroVironment, posted impressive gains, reflecting strong market themes from artificial intelligence to defense spending. However, with RSI readings well above 80, both have entered a zone where risk outweighs reward in the near term.

For disciplined investors, patience often pays off. Waiting for a pullback towards key support or previous consolidation areas can provide more favorable risk-reward settings. In a market this hot, even the strongest names will eventually need time to cool off.

Before you think about Erin, you’ll want to hear this.

MarketBeat tracks the highest-rated and best-performing research analysts on Wall Street and the stocks they recommend to their clients on a daily basis. MarketBeat identified the five stocks that top analysts are whispering to its clients to buy now before the broader market catches up with them… and IREN was not on the list.

While IREN currently has a Moderate Buy rating among analysts, top-rated analysts think these 5 stocks are better buys.

View the five stocks here

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