Stock Market Flashes Warning Signs of Extreme Bullishness, but Five Stocks Poised to Surge on Gamma Squeezes With Technical Strength

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Major benchmarks have just reached another record high, driven by the relentless AI mania and Apple’s stunning iPhone 17 sales. While the macro backdrop and AI optimism may justify the rally, technical signals are warning that bullish momentum looks stretched. Last Friday, we identified the undervalued NBIS, which jumped 12% in just two days. This time, we have found another five tech names showing significant opportunities ahead. Option activity highlights hidden alpha plays that remain underappreciated despite the AI boom, and these could serve as a perfect hedge for investors seeking to boost returns while limiting downside risk.

The recent market rally almost feels reluctant, with gains pushed by the Fed’s 25 bps cut, expectations of two more reductions this year, a potential TikTok deal, and Nvidia’s new partnership with OpenAI further fueling AI enthusiasm. Yet, even the best parties need a pause before the music plays on. The S&P 500 is already up 3.6% this month, despite September’s reputation for weakness, making it the third-best month this year. More importantly, the RSI has surged to 86.43, a level not seen since July 28, when the benchmark corrected more than 2% in just four days.

Sentiment in the Nasdaq 100 looks even more extreme. The rally, powered by Oracle, Nvidia headlines, and AI speculation, has stretched the RSI to 89, a level last seen on May 19, which was followed by a 2% decline within 4 days.

All of this suggests the current mania could soon hit the brakes, especially in the tech-driven Nasdaq 100, where optimism has gone further than in the S&P. Fundamentally, the Nvidia-OpenAI partnership that sparked Monday’s rally makes little sense at present. OpenAI’s commitment to acquire 5 million GPUs in exchange for a $100 billion investment is bold but questionable. This follows its announcement of a $300 billion cloud deal with Oracle over five years and a plan to work with Broadcom to mass-produce ASIC chips next year. With a $500 billion valuation and only $15 billion in revenue, OpenAI cannot realistically sustain this level of spending. For Nvidia, with about $57 billion in cash at the end of July and a recent $5 billion investment in Intel, the proposed $100 billion commitment looks time-consuming and uncertain. Even so, investors continue to celebrate the partnership as AI mania extends.

The overstretched technical signals and shaky fundamentals raise doubts about whether a correction is coming soon. Yet even in this environment, five stocks show surging option interest with potential gamma squeezes. Strong call buying has already forced market makers to hedge by purchasing shares, which could fuel additional upside. These names could serve as an effective hedge against market downside risk.

Super Micro Computer (SMCI) has been a reliable Nvidia server partner, and option activity shows heightened bullish sentiment. More than 50,000 out-of-the-money calls at $48 and $53, along with 33,000 contracts at $50 expiring this Friday, outweigh the 29,000 at-the-money $47 calls. The stock has consolidated after its post-earnings sell-off, forming a bullish “higher low, higher high” pattern. With an RSI of 78, still below extreme territory, the current setup offers an appealing entry point.

ARM has been recovering from recent selling pressure tied to concerns that Nvidia’s partnership with Intel could shift focus back to x86 architecture over ARM. However, Jensen Huang emphasized that the Intel deal does not affect Arm’s relationship with Nvidia. Options suggest optimism, with 1,906 contracts at the $150 strike and 1,627 at $160 expiring this Friday, more than double the at-the-money calls. The stock has bounced from a key support level, hinting at a possible reversal.

Salesforce (CRM) has seen over 1,000 calls placed across strikes from $250 to $270 expiring this Friday, suggesting balanced bullish bets. Shares have recently formed a higher low, though confirmation of a higher high is still needed with resistance at 256. If momentum continues, further gains look likely.

Visa (V) has struggled to keep pace with the S&P 500’s new highs, with concerns that stablecoins could pose a challenge. Still, the stock is holding a higher low just below resistance at 351. Options show about 1,000 contracts at the $350 and $355 strikes, pointing to expectations of a turnaround. From a fundamental perspective, despite stablecoin risks, Visa’s mainstream payments business remains robust in a strong economy, giving investors reason for confidence.

The Trade Desk (TTD) has been weighed down by news that Netflix is partnering with Amazon’s DSP, potentially diverting ad spend. However, option activity suggests contrarian bets on a rebound, with 3,603 and 2,075 contracts at the $50 and $52.5 strikes, implying more than 8% upside from current levels. While competition remains a challenge, a short-term reversal could be attractive.

Notably, all five stocks are still trading well below their historical highs, suggesting that extreme sentiment has not yet been priced into them. These names may hold up even if the broader market corrects. A hedge strategy of going long these stocks while shorting the index could create an interesting surprise in the weeks ahead.