With the S&P 500 index on the verge of hitting an all-time high and many others already there, it's no surprise that investors are enjoying strong year-end rallies. Indeed, all signs point to 2023 being the strongest year since before the pandemic.
Considering how we started the year with red-hot inflation readings and concerns around a broader global recession, it's a remarkable turnaround and bodes well indeed for 2024.
The past few weeks have been mostly one-way traffic as inflation readings continue to cool and expectations rise for the Fed to start cutting rates next year. While good news for investors, the lack of any pullbacks means many relative strength index (RSI) readings are starting to glow.
The RSI is a great way to check how quickly a stock was overbought or oversold. It ranges between 0-100, with anything below 30 pointing to oversold conditions and any reading above 70 pointing to overbought. The more extreme the number, the more influential the stock's condition.
But while a red-hot reading can often be a reason to be cautious, such is the buying momentum flooding back into stocks now that the near-term outlook remains exceedingly bullish. With that in mind, three mega caps with red-hot RSI readings should see even more gains in Q1.
McDonald's Corporation
The home of the Big Mac, McDonald’s Corporation (NYSE: MCD), has had a solid few months, with a 20% rally since October that's still gaining ground. McDonald's shares are within a few dollars of topping their all-time high from this past summer and should tick the box on this goal before too long.
Such is the strength of the rally in recent weeks that the stock's RSI found itself in the mid-80s earlier this month. It was McDonald's highest reading since 2017, and while two days of profit-taking cooled it somewhat, shares are already setting higher highs.
Looking ahead into Q1, the team at Jefferies expects McDonald's to continue outperforming their restaurant, with analyst Andy Barish rating the stock a "buy" earlier this week. His $330 price target points to further gains of at least 10%, putting them at all-time highs that investors are keen to get.
Meta Platforms Inc.
Shares of Meta Platforms Inc. (NASDAQ: META) have been rallying for more than a year now and have all but undone the full slide they endured after 2021. That selloff saw them shed 75% of their value through October last year, but a nearly 300% rally since has essentially put paid to that.
Unsurprisingly, the stock's RSI is high, and at 66, it's running hot. But the good news for investors heading into the new year is that Meta's stock can easily handle the heat. Back in February, the stock's RSI was 84, as it was in June, too, and shares have done nothing but rally since then.
Indeed, only yesterday, the Wedbush team called Meta a top pick for 2024. With the stock currently setting higher highs and lows, the outlook is extremely bullish, notwithstanding the warm RSI. Look for shares to be at fresh all-time highs before too long.
Tesla Inc.
Tesla Inc (NASDAQ: TSLA) shares are well acquainted with both extremes of the RSI range. As recently as October, they were at the bearish end and reading in the mid-20s. They've rode the wave of optimism that's swept equities in the weeks since and are up 30% since then.
This has pushed their RSI back up to the bullish side of things, though at only 56, there's plenty of room for them to run even further before eyebrows start to raise. Their shares command a street-high price target of $380, which points to a further upside of at least 50% from where they were trading on Friday morning.
If there's one stock out there that can deliver that kind of return quickly, it's Tesla. Their revenue is growing, they continue to outpace the competition, and the electric vehicle market is getting hotter. While this past quarter will have been one of their quieter ones of late, look for that to change in the new year.
