The S&P 500 kicks off September trading after closing out its best August since 1986.
The biggest outperformers include FedEx, Nvidia, Apple, Target and General Motors. Salesforce, the top performer, climbed 40% for the month, boosted by earnings and the announcement that it is joining the Dow Jones Industrial Average index.
Those six stocks have become overstretched after their hot August rallies, says Mark Newton, founder of Newton Advisors.
“Whether you stay in these names really depends on your risk tolerance and time frame as an investor,” Newton told CNBC’s “Trading Nation” on Monday. Salesforce, for example, “has gotten overbought where its RSI, relative strength index, is now over 80 on both a weekly and a monthly basis.”
Newton says Salesforce looks bullish over the intermediate-term but could “stand to lose at least 10% to 15% between now and mid-October.”
Apple, he says, could also be vulnerable to a pullback after its 76% rally this year.
“Investors look upon this as being cheap now because it’s now just north of $100 but the stock also shows RSI readings north of 80 on a monthly basis which it’s only done five times over the last 30 years, so extremely overbought here. My cycle studies show this will likely start to turn down over the next three or four weeks and pull back into the middle part of October,” said Newton
Gradient Investments President Michael Binger is still holding onto Apple and Salesforce into September. He says Apple stock still looks relatively cheap with an attractive amount of cash on their balance sheet, while Salesforce should benefit from momentum.
Profits should be taken in some of the biggest winners this month, though, he said.
“Target is going to have a very hard time. I mean, they’ve benefited from stocking up, working from home, not going out, just going to Target or Walmart, they’ve benefited there, so I think those comp numbers that they put up, those sales comps, are going be hard to repeat,” Binger said during the same “Trading Nation” segment.
Target is one of the best retail performers this year. Shares are up 18% in 2020, while the XRT retail ETF has climbed 13%.
“I would also fade Nvidia. Nvidia already trades at two times its growth rate, it’s close to 50 times earnings. At the end of the day this is still a cyclical semiconductor stock,” he said.
Nvidia is the best performer in the SMH semiconductor ETF this year after climbing 127%. It added 26% in August.
