Why Energy Investors Should Avoid Overbought Stocks in Q4 2025

As the energy sector navigates a complex landscape in Q4 2025, investors must remain vigilant about technical indicators that signal overbought conditions. While the sector has shown resilience amid geopolitical tensions and surging demand for natural gas to power AI data centers, momentum-based risk management is critical to avoiding short-term pitfalls. This analysis examines how overbought RSI levels and bearish MACD crossovers in key energy equities highlight the need for caution.

The Overbought RSI Dilemma

The Relative Strength Index (RSI) is a cornerstone of momentum analysis, with readings above 70 typically indicating overbought conditions. In Q4 2025, several energy stocks have breached this threshold. For instance, Precision Drilling Corp (PDS) and Kodiak Gas Services Inc (KGS) registered RSI values of 73.5 and 70.8, respectively, suggesting heightened vulnerability to corrections. Similarly, Nabors Industries Ltd (NBR) and Teekay Corp Ltd (TK) hovered near overbought territory at 73 and 71.1. These levels imply that while these stocks may have enjoyed strong short-term gains, their valuations could be unsustainable without fundamental catalysts to justify further price appreciation.

Bearish MACD Signals and Momentum Divergence

The Moving Average Convergence Divergence (MACD) provides additional clarity on trend strength. In Q4 2025, bearish MACD crossovers have emerged in several energy names, signaling waning momentum. Constellation Energy Corp. (CEG), for example, has seen its MACD turn negative as the stock pulls back from an all-time high, with the 50-day simple moving average acting as resistance. Vertiv Holdings Co. (VRT), an AI-adjacent energy stock, also faces bearish MACD activity after breaking below key support levels. These divergences suggest that even as the broader energy sector outperforms the S&P 500 in December 2025, individual stocks may be losing steam, creating asymmetric risk for investors.

Broader Market Context and Strategic Implications

While the energy sector remains undervalued relative to fair value estimates, the interplay of technical indicators and macroeconomic factors demands a nuanced approach. Geopolitical tensions and surging natural gas demand have fueled sector-wide gains, but overbought conditions in specific stocks could trigger profit-taking and volatility. For instance, Peabody Energy Corp. (BTU), with an RSI of 57.4, appears more balanced, illustrating that not all energy equities are equally exposed to overbought risks. Investors should prioritize stocks with RSI readings in the 55-65 range, which historically indicate strong yet sustainable momentum, while avoiding those with divergent MACD signals.

Conclusion: A Call for Prudent Positioning

Energy investors in Q4 2025 must balance sector optimism with technical discipline. Overbought RSI levels and bearish MACD crossovers in key names like PDS, KGS, CEG, and VRT underscore the risks of complacency. By leveraging momentum-based risk management-monitoring RSI thresholds and MACD trends-investors can mitigate exposure to short-term corrections while capitalizing on the sector's long-term fundamentals. As the year closes, the message is clear: technical indicators are not just tools for timing but essential safeguards in an increasingly volatile market.