Based on the cycle/relative strength concept, S&P 500 stocks were ranked in terms of expected return for the month. The top best traditional performers were then screened for relative strength using a unique measure that considers various time periods. Stocks that passed both screens were deemed buys for the month, while those that were weak monthly performers and weak relative performers were identified as short sales.
The markets are expected to be weak, and this strategy has been applied to the S&P 500 stocks by buying the top 5 rated stocks and shorting the 5 lowest rated stocks. Analysis since January of 2022 shows that the top five long stocks have outperformed short sales by 138% and have surpassed the S&P 500 by 56%, while the short sales fell by about 31%. In April, the long selections fell slightly while short selections dropped significantly.
The top five long recommendations for this month include Micron, Progressive, Hasbro, Wells Fargo, and American Express. Hasbro is in a new relative uptrend with positive earnings reports and momentum showing higher lows. It is not overbought and could potentially add $8 to $10 to its current price. Old Dominion, on the other hand, is an extended stock that remains overbought and has broken down, suggesting a downside target of $150-$160.
The top five short recommendations for this month are Healthpeak Properties, Walgreen Boots, Globe Life, PENN Entertainment, and Old Dominion Freight Line. Healthpeak Properties and Walgreen Boots are examples of weaker stocks with downwards trends, while Old Dominion is highlighted as an overbought stock with room for downside movement.
Overall, the cycle/relative strength concept provides a strategic approach to investing in the stock market by identifying top performers for buying and weak performers for short selling. By applying this method to S&P 500 stocks, investors can potentially outperform the market and generate positive returns. The top recommendations for this month offer insight into stocks that are expected to perform well or poorly based on their current trends and momentum.
