Key points
- Overall, stocks have enjoyed a stellar run spanning several months.
- For stronger traders, this means they can appear extremely overbought.
- However, hot RSI readings can actually indicate that there is a lot more momentum on the way and that further gains are imminent.
- 5 stocks we prefer to those of the EMCOR Group
With gains of nearly 30% since November, it’s been one of the S&P 500’s best multi-month performances in recent memory. It seems increasingly likely that inflation has been tamed by a Fed that has managed to thread the needle and keep it under control without causing a recession. As a result, most stocks enjoyed a widespread boom.
But with such solid, and in many cases one-way, gains in recent months, there’s an argument to be made that some stocks are starting to look a little overheated. One way to see this is through a stock’s relative strength index (RSI). The RSI considers a stock’s recent trading momentum and provides a reading between 0 and 100, indicating whether a stock is overbought or oversold; readings above 70 suggest overbought conditions, while readings below 30 indicate oversold conditions.
A heavily oversold stock can often offer an attractive buying opportunity, while a heavily overbought stock can often warrant caution. However, searching for stocks that meet the latter criteria can often lead to discovering stellar names that seem a little frothy but retain some of their remaining upside. Let’s look at 3 of these names.
Emcor is a $16 billion engineering and construction company based in Connecticut, and its stock has been down sharply since the beginning of the year. Having already posted an impressive 2023, with gains of 120% in the second half alone, they have since added a further 70%.
The stock’s RSI has been above 70 since mid-February, which, interestingly, hasn’t done much to slow the relentless northward march in the meantime. This brings us back to our previous point of a red-hot RSI, which often suggests there are plenty of benefits yet to be realized.
Yesterday stocks recorded their seventh red day since February and the MACD crossed over into the negative, so we may be seeing a timely pause. For those of us on the sidelines, this could be the perfect time, as some profit-taking now would be healthy, as it would push Emcor stock forward for further gains after some consolidation.
Like Emcor, Textron shares have rallied strongly since the first weeks of 2024, gaining as much as 25% in that time frame. Much of the gains came from news that the U.S. military was starting to resume use of Textron planes and equipment, after previously grounding them following a series of deadly crashes.
The aviation and industrial giant’s RSI stood at 82 earlier this week, but interestingly, the last few sessions have seen it take its first breath in a long time.. With Citigroup reiterating its buy rating on the stock just yesterday, simultaneously increasing its own price target at $111I think this week’s profit taking is starting to look like a serious entry opportunity.
Marathon Oil shares have gained about 35% since January, posting an incredible record of just 15 down days in more than three months of trading. But all this upward momentum has pushed the stock’s RSI up to 88, an attractive level that indicates overbought, at least in the short term.
But bullish upgrades from analysts in recent weeks, based on what has been called a “strong financial foundation, low debt levels and robust free cash flow yields,” suggest further gains are imminent.
Just last month Royal Bank of Canada reiterated its Outperform rating on the energy stock, the Argus team upgraded it to Buy, and teams at Morgan Stanley, Goldman Sachs and Mizuho all increased their price targets. As with the other two on this list, a little profit taking in the next few sessions would not be a bad thing, so plan your trade and potential entry points accordingly.
Before you consider EMCOR Group, you’ll want to hear this.
MarketBeat tracks daily Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and EMCOR Group wasn’t on the list.
While EMCOR Group currently has a “Moderate Buy” rating among analysts, top-rated analysts believe these five stocks are better buys.
View the five stocks here
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