At the start of June, I discussed my monthly stock review process, which is used in conjunction with my regular weekly scan and review process. As I have always stressed in both my writing and in my teaching, I feel it is important to develop a consistent and regular process of analysis, whether you are a trader or investor.
One particular benefit of having a regular process is that it helps to avoid emotion-based trades. An impulsive trade made during the market day may lead to regret down the line, or even later in the day.
With that in mind, I began analyzing June’s data last Wednesday to find those stocks that could perform the best in the months ahead.
At the beginning of June, my analysis recommended positions in Salesforce.com (CRM) and PerkinElmer (PKI). These stocks were selected using a combination of momentum, volume, relative performance, and chart formation criteria. By the end of the month, Salesforce had gained 2.6%, and PerkinElmer had gained 6.4%.
Of course, whether I focus on the buy or sell list is dependent on my analysis of the market’s overall trend, which is determined primarily by my monthly and weekly analysis of the analysis of Advance/Decline lines.
In June, the Nasdaq 100 ($NDX), which is tracked by the Invesco QQQ Trust (QQQ), was up 6.3%. More importantly, the Nasdaq 100 Advance/Decline (A/D) line made another new high. This follows a new high in the S&P 500 Advance/Decline line at the end of May (see image).
The monthly Nasdaq 100 A/D line broke out of its 2015-2016 trading range in March 2016 and has stayed positive and above its weighted moving average (WMA) since then. The monthly starc+ band for Nasdaq 100 is at 15,764 for July, which is 7.7% above the June close.
For July, one of the stocks that I liked best from the monthly scan was Apple, Inc. (AAPL). AAPL is one of the most widely followed stocks, and reports earnings on July 26.
AAPL recorded amazing earnings in January, and in April sales were “54% above the prior year”. However, the stock price peaked at $144.63 on January 25, just before the January 27 earnings reports. In March, it had a low of $116.01, and closed on June 30 at $136.96.
The monthly chart shows a flag formation (lines a and b), which is consistent with a pause in the overall uptrend. The monthly starc+ band is at $162.26, with the upside targets from the chart formation are in the $170 area. The June low at $123.13, along with the uptrend (line b) are good monthly support.
The weekly relative performance (RS) crossed back above its WMA in June (point c), which is a sign that AAPL is now leading the S&P 500. The monthly On Balance Volume (OBV) has been positive and above its WMA since May 2020 (point d). Overall volume was not high in June and I would like to see volume greater than March 2021 to confirm any upward price action.
The weekly and daily analyses are both positive; however, AAPL did close above its daily starc+ band on Friday which increased the odds of a pullback. There is initial support now at $136.84, with the rising, 20-day exponential moving average (EMA) at $132.94.
The other favorite monthly pick on my buy list is Cintas Corp. (CTAS). CTAS had a good June, closing up 8.1%, which surpassed the November 2020 high at $367.20. This is now the first good monthly support. CTAS reports earnings on July 14. The monthly starc+ band is at $428.51, which correlates nicely with the upside targets from a breakout above resistance (line a). The June low was $345.34, with additional support in the $338-$340 area.
The monthly RS dropped below its WMA in January 2021, which hinted that CTAS was ready for a pause. The RS tuned positive again in June by crossing back above its WMA, a sign that it is likely to outperform the S&P 500 in the coming months. The On Balance Volume (OBV) dropped below its WMA in January 2021 as it reached the support (line b), before moving back above its WMA in February and turning positive.
The monthly analysis suggests that both of these stocks should be higher in the next six months. AAPL is very likely to overcome its January highs, as both stocks are likely to reach their chart targets.
The stock market closed strong on Friday so is stretched a bit on the upside. This increases the odds of a pullback in this holiday-shortened week, as traders and investors digest the better-than-expected monthly jobs report.
I will continue to watch these two stocks for entry points in the coming week, and I will post updates on my Twitter. The entry point will help determine the risk/reward profile for your position, but I would not expect either stock to drop below the June lows.