It's that time of year again: the first shades of red and yellow, a crispness in the morning air, and students returning to classrooms across the nation. The question for traders then becomes: what stocks in the S&P 500 tend to repeatedly do well over the shortened Labor Day trading week? To answer this question, we turn to research complied by Schaeffer's Senior Quantitative Analyst Rocky White, who analyzed data to determine which equities provided the best average returns in the four trading sessions after the Labor Day holiday between 2008 and 2018.

Key Takeaways

  • United Rentals (URI) and Under Armour (UAA) have repeatedly outpaced the S&P 500 during Labor Day week over the last decade.
  • The URI share price is trading toward the top of an ascending triangle—a chart pattern that typically breaks to the upside.
  • UAA shares have formed a pennant, which usually indicates upside continuation.

Interestingly, White's research showed that rentals services company United Rentals, Inc. (URI) and sports apparel manufacturer Under Armour, Inc. (UAA) delivered the highest returns for the week, gaining an average of 4.15% and 3.9%, respectively. What's more, these two stocks have continued their run of market-beating gains during Labor Day week over the past two years, each returning an average of 0.38% and 1.69%, compared to the S&P 500 shedding 0.06% over the same period. Let's take a closer look at each name and analyze the charts to identify possible trading plays.

United Rentals, Inc. (URI)

United Rentals operates as an equipment rental company through two business units: General Rentals and Trench, Power, and Fluid Solutions. One possible explanation for the company's outperformance at this time of year may relate to more industrial construction commencing after the slower summer months. In June, UBS Group AG (UBS) upgraded United Rentals stock to "buy" from "neutral" and lifted its 12-month price target to $375 from $335, implying 6% further upside from Thursday's close of $353.75.

Analyst Steven Fisher argues that the equipment renter stands to benefit from increased construction spending due to Washington's $1 trillion infrastructure bill. Fisher also likes the company's cross-selling opportunities created from its higher-returning specialty portfolio. As of Sept. 3, 2021, United Rentals stock has a market capitalization of $25.61 billion and is trading 52.5% higher since the start of the year. Over the past month, the shares have gained 8.42%.

The United Rentals share price is trading toward the top of a loosely constructed ascending triangle—a chart pattern that typically breaks to the upside. Traders who position for a breakout into Labor Day week should consider using the measured move strategy to determine a suitable exit point. To do this, calculate the widest section of the triangle in dollars, and add that amount to the pattern's top trendline. For example, add $96 to $360 for a profit target of $456.

Chart depicting the share price of United Rentals, Inc. (URI)

TradingView.com

An ascending triangle is a chart pattern used in technical analysis. It is created by price moves that allow for a horizontal line to be drawn along the swing highs, and a rising trendline to be drawn along the swing lows. The two lines form a triangle.

Under Armour, Inc. (UAA)

With a market value of $10.1 billion, Under Armour develops, markets, and distributes athletic apparel, footwear, and accessories globally. The company—known for its sponsorship of high-profile athletes, such as Tampa Bay Buccaneers quarterback Tom Brady and Golden States Warriors point guard Stephen Curry—may catch a bid during Labor Day week on hopes of more athletic gear running out the door in time for the new school year. Last month, JPMorgan Chase & Co. (JPM) analyst Matthew Boss upgraded Under Armour stock to "overweight" from "neutral" and bumped his price target to $30 from $25.

Boss told investors that he sees the company continuing to benefit from the growing global sportswear market, which he sees expanding at an annualized rate of 8% between 2021 and 2025. Under Armour stock has gained nearly 35% year to date and 9.28% over the past month as of Sept. 3, 2021.

After staging a sharp rally from the 200-day simple moving average (SMA), Under Armour shares have formed a pennant, which usually indicates upside continuation. Once again, traders should think about using the measured move technique to determine a take-profit order price. In this instance, calculate the trend that preceded the pennant in points and add that amount to the pattern's upper trendline. So, add $7.50 to $23.70 for a profit target of $31.20.

Chart depicting the share price of Under Armour, Inc. (UAA)

TradingView.com

A pennant is a type of continuation pattern formed when there is a large movement in a security, known as the flagpole, followed by a consolidation period with converging trendlines

Disclosure: The author held no positions in the aforementioned securities at the time of publication.