Tesla and Micron are running hot as the S&P 500 locks in another record, ending the week at 6,600.21. That move followed higher unemployment claims and a drop in wholesale prices, pushing traders to fully expect the Federal Reserve to cut interest rates by 0.25 percentage points next week.

The index rose 1.6% this week. But that rally has shoved certain stocks into overbought territory, and two of the loudest names on that list are Tesla and Micron.

Data from CNBC flags S&P 500 names with gains above 5% and relative strength indexes (RSI) over 70. That threshold is where traders usually get twitchy, anything above 70 often signals too much buying too fast.

Micron now holds an RSI of 81.2, while Tesla is sitting at 75.6. That makes both stocks extremely vulnerable to sudden reversals, especially if investors decide to cash out.

Micron hits 2020-level gains as analysts raise targets

Micron’s stock surged 20% this week, the biggest five-day jump for the chipmaker since March 2020. That move followed a price target upgrade by Citi on Thursday, which bumped their estimate to $175, an 11% gain from Friday’s close.

In a note, Citi analyst Christopher Danely wrote:

“Micron will report F4Q25 results on September 23 after market close. We expect the company to report in-line results and guide well above consensus driven by higher DRAM and NAND sales and pricing. We believe the continued memory upturn is being driven by limited production and better than expected demand, particularly from the data center end market (55% of Micron revenue).”

Micron’s gains were not isolated. The rally was part of a wider $14 trillion rise across equities since April. But its extreme RSI shows it may be peaking, at least for now.

Traders holding these gains might book profits ahead of the earnings report, adding more volatility.

Tesla surges on Musk compensation plan amid Fed anticipation

Tesla, which has climbed 18% this month, extended its rally this week after the company’s board proposed a nearly $1 trillion pay package for CEO Elon Musk.

The stock had already been on the rise, but the pay plan lit a fire under it. With its RSI now at 75.6, Tesla is officially in overbought territory.

The broader market’s rally hasn’t happened in a vacuum. Investors are betting that the Fed, after pausing in December, will resume rate cuts. The next move is widely expected to happen Wednesday, and traders are pricing in at least 150 basis points of cuts over the next year.

Historically, the S&P 500 has gained 15% on average in the year after rate cuts resume following a pause of six months or longer, based on data going back to the 1970s. In comparison, it averages a 12% gain after the first cut of a typical easing cycle.

But the big question is whether the Fed is already too late. Unemployment has reached its highest level since 2021, and while growth still looks decent, those warning signs have started to pile up.

Some traders are pivoting to smaller companies, hoping they’ll benefit from lower borrowing costs. Others are sticking with megacap names like Tesla and Micron that have powered the market’s rise.

Investors are watching closely for the Fed’s statement on Wednesday, followed by Chair Jerome Powell’s press conference. All eyes will be on the dot plot, which maps out the Fed’s interest rate forecasts.

The Russell 2000, a small-cap focused index, is up 7.5% this year, while the S&P 500 has gained nearly 12%. If interest rates drop fast, the gap between those two could shrink, but if the Fed drags its feet on cutting or the economy slows down harder, all bets are off.

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