August is in the books and there are some fresh trends brewing beneath the surface.
The tech and growth trade led the market off the April lows, but evidence continues to suggest this theme is cooling.
New leadership is emerging from pro-cyclical areas such as financials, industrials and small caps.
We run a variety of scans at the end of each month to help us analyze what happened… and more importantly, what’s likely to happen next.
We figure we might as well share some of that with our readers, so here it is.
These are the Top Stocks for the Month of August.
This scan offers a quick and dirty look at the best and most consistent outperformers during the calendar month.
We’re tracking the frequency of outperformance in the number of days column (how many days did the stock beat the average during the month), and the magnitude of outperformance in the next one.
The performance vs SPY is simply the margin of outperformance, or alpha, relative to the S&P 500. Then this is expressed with a letter grade in the last column.
So, how often did this stock beat the market in the past month… and by how much?
It’s really that simple.
This month’s list is packed with solid leadership names and actionable setups. Let’s take a look at our favorites.
Our first setup this month is an $82B industrial conglomerate. This is 3M Co. $MMM:
3M Co is putting the finishing touches on a bearish-to-bullish reversal base. Price is currently pressing against a key retracement level around 161.
On a relative basis, MMM has bottomed vs the broader market after a prolonged period of underperformance.
We're buyers of a breakout on strength above 161, targeting the all-time highs near 217.
Our other setup is the $235B capital markets powerhouse, Morgan Stanley $MS:
Morgan Stanley is breaking out above a key extension level, one that capped its advance earlier this year.
Over longer timeframes, this breakout comes in the context of a much larger structural base that dates back to the Great Financial Crisis.
On a relative basis, MS is completing a reversal vs the broader market, setting a clean series of higher highs and higher lows. This suggests more outperformance is coming over longer timeframes.
As long as MS remains above 144, we're buyers targeting 229.
I have an overweight position on Morgan Stanley and friends right now. The biggest banks in the U.S. have been some of the best stocks. Around the world, financials are the primary leadership group.
We’ve been buying calls and selling doubles in Citigroup and Bank of America all summer in Breakout Multiplier. And we’re looking to add even more exposure to this group soon.
