Most Overbought Stocks on the ASX (TEA, MP1, WES, SSM, CPU)

Momentum can swing in the share market, and trading with the trend is one of the more successful, simple strategies. You will have likely heard the phrase “the trend is your friend” around shares, but there are times a trend can be reaching technical extremes. This is one of the uses of the RSI, or relative strength index, with levels below 30 considered ‘oversold’, and levels above 7o ‘overbought’. Whilst you do not always get a trend reversing with overstretched RSI, these are technical levels that are watched by market players, and as such, can be worth keeping an eye on.

This week, we are taking a look at some of the most overbought ASX shares, but limiting our search to those companies with a market cap of A$1bn. Although 70 is considered overbought, an RSI above 80 is approaching extremely overbought, and a point where technical analysis suggests may see some cooling of buying pressure. Here are five stocks on the ASX to watch this week, all coming in hot.

Tasmea Ltd leads the overbought cohort with an RSI of 86.16 and a 43.81 per cent surge over the past month, lifting its market capitalisation to A$2.33 billion. The industrial services consolidator has added more than 400% since its April 2024 listing, with shares now changing hands in the mid-A$8 range despite a forward price-to-earnings multiple in the mid-twenties.

Wesfarmers Ltd, the country’s diversified retail and industrial conglomerate, sits just behind at an RSI of 84.10 after climbing 20.85 per cent in a month to A$86.47. The move has pushed one of the ASX’s heavyweight defensive stocks into territory typically reserved for speculative growth plays, reflecting a persistent bid from quality-focused funds seeking refuge from broader market volatility.

Technology infrastructure provider Megaport Ltd has delivered the most explosive move, rocketing 98.53 per cent in a single month to register an RSI of 83.19. The near-doubling follows an investor presentation highlighting network expansion and cloud connectivity growth, triggering aggressive short-covering and momentum buying in a name known for violent swings.

Service Stream Ltd rounds out the top tier with an RSI of 80.57 and a 19.9 per cent monthly gain, while Computershare Ltd posted a 23.29 per cent advance to reach an RSI of 80.32. Both stocks have benefited from sector rotation into perceived earnings visibility, with markets repricing their exposure to infrastructure spending and interest-rate dynamics respectively.

Driving Momentum

Tasmea’s vertical trajectory stems primarily from its 1 June announcement of a A$254 million acquisition of Maxim Group Australia, a specialist electrical and infrastructure contractor. The deal structure comprises approximately A$112 million in cash funded by existing resources and debt, A$72 million in scrip issued at A$6.00 per share with a floor-price guarantee through 30 June 2027, and up to A$70 million in performance-linked earn-outs contingent on Maxim delivering at least A$50 million in annual EBIT through FY2027-29.

The acquisition reinforces Tasmea’s strategy as a serial consolidator in fragmented industrial services, following its late-2025 completion of the WorkPac Group purchase and earlier integration of Vertex Power & Process. Trailing twelve-month revenue has reached approximately A$702 million, up 55 per cent year-on-year, with the company maintaining conservative pro-forma leverage of around 0.8 times net debt to EBITDA despite the acquisition spree.

Wesfarmers’ momentum accelerated following its 11 June strategy day, where management announced the transfer of Blackwoods and Workwear Group from the Industrial & Safety division into Bunnings Group effective 1 July. The portfolio reshuffle accompanied broader messaging around artificial intelligence deployment and advanced analytics across merchandising, supply chain and customer service functions. Markets interpreted the reorganisation as unlocking potential synergies by consolidating trade and industrial offerings under Bunnings’ distribution platform, though some analysts view the move as masking structural pressure in legacy industrial units.

Megaport’s surge followed an early June ASX presentation reiterating the company’s expanding global connectivity platform and deepening relationships with hyperscale cloud providers. The software-defined networking business has positioned itself as infrastructure for cloud and AI workloads, with high operating leverage to traffic growth. The company’s fixed-cost structure means demand fluctuations flow directly to margins, creating significant earnings sensitivity that amplifies both upside and downside moves.

Service Stream’s 20 per cent rally lacks a single catalyst but reflects improving sentiment around sustained infrastructure and utility capital expenditure, particularly in telecommunications, energy transition and maintenance contracts. The essential network services provider has benefited from rotation into earnings-visible, contract-backed industrials as markets seek relative safety without abandoning growth exposure entirely.

Technical and Valuation Context

RSI readings above 80 across all five names indicate crowded positioning and momentum-driven buying rather than measured fundamental revaluation. Historical analysis shows such extreme clusters often precede volatility spikes and sharp mean-reversion episodes, even when underlying bull theses remain intact over longer time horizons.

Tasmea trades on a trailing price-to-earnings ratio above 40, with forward multiples in the mid-twenties assuming successful integration of recent acquisitions and achievement of synergy targets. The valuation leaves minimal margin of safety if organic growth slows or acquired assets underperform management’s EBIT projections, particularly given the company’s brief listed history and limited track record managing multiple simultaneous integrations.

Wesfarmers’ premium to historical averages reflects its perceived quality and defensive characteristics, yet the conglomerate structure typically commands a discount rather than a premium in normal market conditions. The mid-A$80s share price implies limited near-term earnings surprise potential, with most optimistic scenarios around portfolio optimisation and technology-enabled efficiency already reflected in current multiples.

Megaport’s near-doubling in a month has pushed valuation metrics into territory that discounts several years of flawless execution on network scaling and margin expansion. The high-beta technology name remains acutely sensitive to macro IT spending cycles, with fixed costs and capital intensity creating significant downside leverage if cloud infrastructure investment moderates.

What Could Be Ahaed

For Tasmea, the key test arrives with integration execution and whether management can deliver promised synergies while maintaining organic growth momentum. The company’s use of equity consideration at A$6.00 per share when the stock now trades near A$8.50 has proven retrospectively accretive, but future acquisitions at current valuations would materially dilute existing shareholders unless earnings growth accelerates further.

Wesfarmers faces the challenge of justifying a rich multiple for a mature conglomerate with limited short-term catalysts beyond operational refinement. Any softness in consumer discretionary spending at Bunnings or Kmart, or disappointments in the health and chemicals divisions, could trigger reassessment of the defensive premium markets have awarded the stock.

Megaport’s trajectory depends heavily on sustained enthusiasm for AI and cloud infrastructure themes, with the business model’s high operating leverage cutting both ways. A modest deceleration in hyperscaler capital expenditure or enterprise cloud migration could quickly reverse sentiment and trigger the kind of violent downside volatility that characterised previous corrections in the name.

Service Stream and Computershare face more prosaic risks tied to contract economics and interest-rate paths respectively.

The broader question facing markets is whether these overbought readings represent a healthy rotation into quality and growth, or a late-cycle chase into expensive momentum that leaves participants exposed to sharp reversals.