What will happen to Moderna stock after the surge? Analyzing 'overbought' stocks

The S&P 500 index ended last week with a decline of 1.4%, breaking a streak of three green weeks, against the backdrop of rising US government bond yields that weighed on the market. Under the surface, however, several individual stocks surged so significantly that they entered what is known in capital market jargon as the "overbought zone."

RSI (Relative Strength Index) is a technical analysis tool developed by engineer and trader J. Welles Wilder in 1978. Simply put, the index examines the speed and intensity of a stock's price movement over a given period (usually the last 14 trading days), translating this into a score between 0 and 100. The accepted rule of thumb: a reading above 70 is considered "overbought," suggesting the stock has risen strongly and may be exposed to a downward correction. A reading below 30 signals the opposite, "oversold."

The prominent stars on the list are two pharmaceutical companies, Moderna and Merck:

• Moderna was the big winner of the week, with a jump of 129%, bringing its RSI to exactly 70—right on the threshold.

• Merck rose by 12% and recorded a higher RSI of 77.

The surge followed reports of positive results in an advanced-stage trial of a personalized skin cancer (melanoma) vaccine, combined with Merck's immunotherapy drug Keytruda. The trial met its goals among high-risk patients who had already undergone surgery. Despite the rally, the analyst consensus on Moderna remains at a "hold" recommendation, while Merck continues to enjoy a "buy" rating.

Cosmetics manufacturer Estée Lauder joined the overbought group with an increase of more than 18% for the week, following a quarterly report that beat analyst forecasts. The company also raised its adjusted operating profit forecast for 2027 to a range of 12.7% to 13.5%.

Two medical laboratory equipment companies, Agilent and Thermo Fisher, also entered the list. Agilent recorded the highest RSI in the review at 79, while Thermo Fisher stood at 71. Both enjoy a "buy" recommendation from Wall Street analysts.

"Overbought" does not mean that the stock must fall—a strong stock can remain in this zone for weeks or even months when it has a solid upward trend or fundamental business changes behind it, as happened with Moderna.

It is important to note that the RSI is only a tool for identifying momentum, not a prophecy. It ignores fundamental value, profitability, and future forecasts, and therefore tends to send false signals. For the Israeli investor holding exposure to the S&P 500, the lesson is not to chase stocks that have already "run" just because they are in the headlines. A high RSI serves as a warning light requiring deeper examination, not as a substitute for understanding the business itself.