For this month, the cycle/relative strength concept is applied. First, the Dow Jones 30 stocks are ranked from the best performer to the worst by calculating the expected return in that month. The top best traditional performers in the month were then screened for relative strength by a unique measure that sorts by several relevant time periods. Those that pass both screens are buys for the month. The stocks that are both weak monthly performers and weak relative performers are short sales for the month.
The markets are expected to rally to mid-month, so the longs are favored.
This process has been applied to the Dow Jones 30 stocks by buying the top 5 rated stocks and by shorting the 5 lowest rated stocks. From January of 2020, the top five long stocks have risen by an amount about 55% greater than that of the short sales and 19% over the DJIA. The short sales were net negative over that time period at -7%.
Here are the top five long recommendations for this month:
IBM-IBM
Caterpillar-CAT
Salesforce-CRM
Microsoft-MSFT
JP Morgan-JPM
Here are the top five short recommendations for this month:
MMM-MMM
Walgreen Boots-WBA
Dow-DOW
Nike-NKE
Johnson & Johnson-JNJ
IBM was seen to be the best performing long last month. It indeed was with a 12.3% gain. It remains the top pick. The stock is coming off a long base and appears to be entering into a new bull phase unlike other Dow stocks. Both the weekly and the monthly cycles rise though the month. Monthly relative strength is reversing a long downtrend. If IBM appears excessively overbought, Salesforce is the next selection.
IBM Daily, Weekly, Monthly
Nike is ranked 27th in the screen. Relative strength has recently hit a new low and is nearing its lowest level since 2017. Monthly momentum shows a bearish divergence. This month has been the second weakest month to hold the shares. The stock is likely to decline closer to its February low at $90.
Nike Daily, Weekly, Monthly