The Stock of Super Micro is at Its Most Overbought Level in a Year. Here’s Why That’s Bullish

Super Micro Computer Inc.’s stock continued its upward momentum on Wednesday, showing a pattern reminiscent of its sharp rally earlier in 2024. This resurgence has fueled optimism among investors, as the stock appears to be gaining traction once again.

‍

Shares of the server manufacturer surged as much as 19.1% during intraday trading before trimming gains to close up 8% at $60.25, marking a six-month high. The stock has now jumped 56% over the past five trading sessions.

‍

So far this month, Super Micro shares have soared 111.3%, positioning them for their best monthly performance since May 2023, when they surged 112.4%. The stock’s sudden strength is largely attributed to growing anticipation surrounding the company’s ability to secure significant deals in the artificial intelligence (AI) server space.

‍

This rapid rally has also triggered notable technical effects. The stock’s relative strength index (RSI), a key momentum indicator, has reached its highest level in a year.

‍

An RSI reading above 70 generally signals an “overbought” condition, meaning a stock has climbed too quickly relative to historical patterns and might need to pause before resuming its ascent. On Wednesday, Super Micro’s RSI hit 80.38, a level suggesting extreme momentum.

‍

However, the term “overbought” can often be misleading. In many instances, reaching such levels is less of a warning sign and more of an indication of strong underlying demand.

‍

Historical data shows that the last three times Super Micro’s RSI exceeded 80, the stock continued to rally before eventually pulling back. The most recent occurrence was on January 23, 2024, when the RSI closed at 80.5 following a 47% surge in just three days. Over the next 17 sessions, the stock climbed in 15 of them, gaining 119.5% before experiencing a significant decline.

‍

Another encouraging technical factor is that Super Micro’s stock closed above its 200-day moving average (200-DMA) for the second consecutive day on Wednesday. Many traders view the 200-DMA as a crucial long-term trend indicator. The last time the stock achieved back-to-back closes above this level was on August 1, 2024.

‍

Looking ahead, key resistance levels to monitor include the $71 range, which previously acted as support but could now serve as a barrier to further gains. Beyond that, another potential resistance zone lies in the $90 to $95 range, where the stock’s closing highs were established between May and July.

‍

As Super Micro continues its rapid ascent, investors will be watching closely to see whether it can maintain its momentum or if a pullback is on the horizon.

‍