The S&P 500 closed at 4,388.64, about a 20% rise from its most recent 52-week low — marking a fresh start of a new bull market. The rise has been driven mainly by technology stocks and has sparked renewed optimism on Wall Street. With market optimism shifting, the next question is, what companies are prime candidates for investments?
As markets move upwards, investors hunt for the next market leaders, so it’s important to find out which stocks will likely shine. One of the ways to find the next leaders is to find stocks that have moved into their bullish zone using a momentum indicator such as RSI.
What is an RSI?
RSI, or the Relative Strength Index (RSI), is a technical momentum oscillator calculated based on the intensity of recent price movements. RSI is displayed on a scale of 0 to 100, where 100 is the most overbought and 0 is the most oversold. An RSI indication above 70 is considered overbought, 50 is considered neutral, and below 30 is considered oversold. Similarly, a break above 50 signals a potential change into a bullish trend, and a break below signals a potential change into a bearish trend. In addition, a bounce on the 50 mark can also be another way to ride leaders for a continuation of the trmovementThat said, the RSI shouldn’t be considered a buy indicator- rather, a signal to look and discern the potential of a stock to move.
Let’s look at some stocks that recently broke or bounced on their 50 RSI line.
Sales Force Inc. (CRM)
Salesforce, Inc. is a customer relationship management (CRM) technology provider that offers the platform Customer 360, which spans sales, marketing, service, commerce, collaboration, integration, analytics, artificial intelligence, automation, and others. Their platform connects customer data across systems, applications, and devices and provides its users with a complete view of customers.
The company also enables third parties to use its platform and developer tools to build additional functionality and applications on top of their platform based on their needs.
Salesforce’s platform allows its customers to use their product offering to store data, monitor leads and progress, forecast opportunities, gain insights through analytics and relationship intelligence and deliver quotes, contracts, and invoices. Finally, its CRM platform helps connect its clients, customers, and service agents across any touchpoint, which helps customers resolve routine issues with predictions and recommendations.
Should you buy it?
CRM is currently trading between a tight range in the $194.00-$225.00 area and has been on an uptrend since last year. RSI bounced on its 50 mark, which shows prices still in its bullish momentum. Traders willing to buy into CRM can either wait for prices to test the $195.00 area or wait for a confirmed breakout.
West Pharmaceutical Services (WST)
West Pharmaceutical Services, Inc. is a manufacturer and designer of technologically advanced, integrated containment and delivery systems for several injectable drugs and healthcare products. The company focuses on two segments:
- Proprietary Products
- Contract-Manufactured Products
The Proprietary Products offers proprietary packaging, containment solutions, and drug delivery products. This includes analytical lab services and other integrated services and solutions for biologic, generic, and pharmaceutical drug customers. Its Contract-Manufactured Products segment is a fully integrated business focused on designing, manufacturing, and automating complex devices, primarily for pharmaceutical, medical device, and diagnostic customers. It also manufactures customer-owned components and devices used in surgical, ophthalmic, diagnostic, injectable, and other drug delivery systems, as well as consumer products.
Are we up for another run?
WST is currently trading above its resistance area in the $350.00 and broke above its 50 RSI mark. With prices still on the uptrend, investors and traders can wait for confirmation of the upward move toward its next resistance around the $425.00 area or wait for any continuation pattern, like triangles, flags, etc., that can provide additional context on the direction of the price.
Chipotle Mexican Grill (CMG)
Chipotle Mexican Grill, Inc., alongside its subsidiaries, owns and operates Chipotle Mexican Grill restaurants that serve a relevant menu of Mexican foods like:
- Burritos
- Burrito bowls
- Quesadillas
- Tacos
- Salads
The company has around 3,200 restaurants in the United States, United Kingdom, Canada, France and Germany. They manage and operate in eight regions. The company also sells non-expiring gift cards. The company also focused on selling only meats and brands these meats as Responsibly Raised in their Chipotle restaurants. The company’s subsidiaries include:
- Chipotle Mexican Grill Canada Corp.
- Chipotle Mexican Grill France SAS
- Chipotle Mexican Grill Germany GMBH
- Chipotle Mexican Grill of Berwyn Heights, LLC
- Chipotle Mexican Grill of Colorado, LLC
- Chipotle Mexican Grill of Kansas, LLC
- Chipotle Mexican Grill of Maryland, LLC
- SP Kitchens, LLC
- Chipotle Mexican Grill Texas Holdings, LLC
Are we going to get another high?
CMG has been in a continuous uptrend and is currently consolidating from its recent all-time high at $2139.88. Users who wish to buy into CMG should take proper risk management when buying into CMG as prices were recently overbought and have no signs of a follow-through, even with its mini bounce on RSI 50. Like any type of signal, if it’s not convincing yet, it is best to wait for the trade to come to you.
Final thoughts
Using RSI to trade and invest in companies that could shift their direction or continue their bullish trend is one of the ways to take advantage of the opportunities in the market. RSI gives investors an idea of how prices behave and gives actionable ideas to ride any breakouts or avoid potential dangers. However, investors should still employ proper risk management to ensure that losses incurred can still be handled by their portfolio and trade what the markets give them rather than chase it.
