It's been a great few weeks for equities, with the S&P 500 index returning from its post-summer slump with vigor. It's up almost 10% since the end of October, with renewed hopes that inflation has tamed, driving the risk-on sentiment.
Unsurprisingly, many stocks got burned by last year's red-hot inflation readings, and the subsequent interest rate rises are seeing some of their best runs in a long time. Many investors, waiting with cash on the sidelines, treated this as the turning point and got stuck in.
However, this kind of unbridled optimism should come with a word of warning. Technical indicators, such as the relative strength index (RSI), are starting to indicate overbought conditions for many stocks. The S&P 500 itself has a reading of 68, which has been on a near-vertical rise since tagging 29 less than three weeks ago. But still, there are fundamental macro changes in play here, and even with that word of warning, it's a great time to be a buyer. Here are three stocks that remain attractive even with a red-hot RSI reading.
While many stocks are only just starting to reverse downtrends that have been ongoing since 2021, shares of the streaming giant Netflix Inc. (NASDAQ: NFLX) put in their low back in May of last year. To be fair, by that time, they'd lost about 75% of their value in just six months, so it was probably time for the bears to take a breather.
They rallied through this past summer when, like most equities, they fell off the wagon and sold most of the way through September and October. But in the past four weeks, their shares have managed to tack on 35%, putting them right back up at their summer highs and, in many ways, confirming the rally is still intact.
Even with an RSI of 76, their shares closed at their high of the day last night, which points to a rampant appetite from buyers to get involved before the weekend. Bank of America and JP Morgan have been out with bullish comments on the stock in the past week, further bolstering the longer-term potential.
Apple Inc. (NASDAQ: AAPL) shares led the way for the first part of the year, delivering gains while many stocks were, at best, trading flat. They even hit an all-time high in July before catching up in the general softness that overtook stocks in August. However, they've been powering higher for the past three weeks and closed yesterday at their highest level since July.
An RSI reading of 71 points to some frothy conditions, but it's important to note that geopolitical and macro headwinds drove much of Apple's downturn, both of which have been dissipating in recent weeks. That means there's a full re-pricing underway, and given the strength in the stock seen during the first half of the year, it's fair to expect something similar through the final couple of weeks.
Earlier this week, Wedbush named Apple its favorite name heading into 2024, believing a "new tech bull market has begun." Apple will be a hard name to skip for investors looking at what to add to their portfolios, notwithstanding the current RSI reading.
While Apple managed to tag an all-time high earlier in the summer, Microsoft Corp. (NASDAQ: MSFT) has announced itself as one of the strongest names by tagging them all this week. Their shares closed at their high of the day last night, pointing to continued momentum on the bid that should continue flowing through in the weeks ahead.
Even with an RSI reading of 75, you can't ignore this kind of trading. The company has been delivering solid earnings reports, which have shown impressive growth in its cloud unit, which stands to do even better with interest rates on the verge of dropping.
Just last week, the team at Jefferies said Microsoft is in one of the best buy cycles seen in a long time, with the advent of AI set to propel it even further. With the stock already at fresh all-time highs, it's in blue-sky territory with no resistance ahead. Look for more momentum on the bid in the coming weeks, as this is simply too good to miss.