The broad stock market has extended its rebound last week (April 1 - April 7). On March 23 it sold off to the new medium-term low of 2,191.86. It was a stunning 35.4% below February 19 record high of 3,393.52. The corona virus and economic slowdown fears have erased more than a third of the broad stock market value! Then we saw huge come-back rally, as the S&P 500 index got back to local highs above 2,700 mark. Is this a new uptrend or just upward correction before another leg down? We will certainly see more short-term volatility.
The S&P 500 index has gained 6.46% since last Wednesday's open. In the same period of time our five long and five short stock picks have gained 0.59%. So our stock picks were relatively weaker than the broad stock market. However, long stock picks have outperformed the index as they've gained 10.03%. But short stock picks have resulted in a loss of 8.84%. The overall results remain relatively better than the S&P 500 index over last weeks.
If stocks were in a prolonged downtrend, being able to profit anyway, would be extremely valuable. Of course, it's not the point of our Stock Pick Updates to forecast where the general stock market is likely to move, but rather to provide you with stocks that are likely to generate profits regardless of what the S&P does.
This means that our overall stock-picking performance can be summarized on the chart below. The assumptions are: starting with $100k, no leverage used. The data before Dec 24, 2019 comes from our internal tests and data after that can be verified by individual Stock Pick Updates posted on our website.
Below we include statistics and the details of our three recent updates:
- Apr 7, 2020
Long Picks (Apr 1 open - Apr 7 close % change): PFE (+5.29%), KR (+5.15%), ANSS (+7.40%), SLB (+25.82%), WFC (+6.48%)
Short Picks (Apr 1 open - Apr 7 close % change): COG (+8.89%), MCO (+13.26%), MMM (+9.55%), IDXX (+5.86%), EL (+6.63%)
Average long result: +10.03%, average short result: -8.84%
Total profit (average): +0.59% - Mar 31, 2020
Long Picks (Mar 25 open - Mar 31 close % change): INTC (+3.13%), STZ (+14.92%), PFE (+10.64%), SLB (-10.01%), WFC (-1.03%)
Short Picks (Mar 25 open - Mar 31 close % change): WMB (+8.10%), PGR (+7.03%), EQIX (+16.57%), ADBE (+3.32%), CHD (+3.60%)
Average long result: +3.53%, average short result: -7.73%
Total profit (average): -2.10% - Mar 24, 2020
Long Picks (Mar 18 open - Mar 24 close % change): LW (+9.21%), BDX (-15.16%), PEG (+0.30%), SLB (+10.00%), AXP (+5.04%)
Short Picks (Mar 18 open - Mar 24 close % change): COG (-12.05%), PGR (-5.79%), ITW (-7.68%), HSY (-7.78%), REGN (-9.33%)
Average long result: -0.38%, average short result: +8.53%
Total profit (average): +4.07%
Let's check which stocks could magnify S&P's gains in case it rallies, and which stocks would be likely to decline the most if S&P plunges. Here are our stock picks for the Wednesday, April 8 - Tuesday, April 14 period.
We will assume the following: the stocks will be bought or sold short on the opening of today's trading session (April 8) and sold or bought back on the closing of the next Tuesday's trading session (April 14).
We will provide stock trading ideas based on our in-depth technical and fundamental analysis, but since the main point of this publication is to provide the top 5 long and top 5 short candidates (our opinion, not an investment advice) for this week, we will focus solely on the technicals. The latter are simply more useful in case of short-term trades.
First, we will take a look at the recent performance by sector. It may show us which sector is likely to perform best in the near future and which sector is likely to lag. Then, we will select our buy and sell stock picks.
There are eleven stock market sectors: Energy, Materials, Industrials, Consumer Discretionary, Consumer Staples, Health Care, Financials, Technology, Communications Services, Utilities and Real Estate. They are further divided into industries, but we will just stick with these main sectors of the stock market.
We will analyze them and their relative performance by looking at the Select Sector SPDR ETF's.
Let's start with our first charts (charts courtesy of www.stockcharts.com).
There's S&P 500's 30-minute chart along with market sector indicators for the past month. The S&P 500 index has lost 12.08% since March 6. The strongest sector was Health Care XLV, as it lost just 6.83%. The Consumer Staples XLP lost 7.97% and Technology XLK lost 8.16%.
On the other hand, the weakest sector was Energy XLE again, as it lost 27.18% in a month. The Real Estate XLRE lost 19.18% and Financials XLF lost 18.94%.
Based on the above, we decided to choose our stock picks for the next week. We will choose our top 3 long and top 3 short candidates using trend-following approach, and top 2 long and top 2 short candidates using contrarian approach:
Trend-following approach:
- buys: 1 x Health Care, 1 x Consumer Staples, 1 x Technology
- sells: 1 x Energy, 1 x Real Estate, 1 x Financials
Contrarian approach (betting against the recent trend):
- buys: 1 x Energy, 1 x Real Estate
- sells: 1 x Health Care, 1 x Consumer Staples
Trend-following approach
Top 3 Buy Candidates
WAT Waters Corp. - Health Care
- Breakout above month-long downward trend line
- Resistance level of $210-215 (upside profit target level)
WBA Walgreens Boots Alliance, Inc. - Consumer Staples
- Price bounced off from new medium-term low
- Closer to breaking above the downward trend line
- The resistance level at $50 (upside profit target level)
AMD Advanced Micro Devices, Inc. - Technology
- Breakout above the downward trend line
- The resistance level of $50-54
- Rising RSI indicator confirming short-term uptrend
Top 3 Sell Candidates
CVX Chevron Corp. - Energy
- Stock got close to the resistance level
- Relatively big upward correction - potential downward reversal
- The support level of $67.5 (downside profit target level)
EXR Extra Space Storage Inc. - Real Estate
- Stock price remains below the resistance level of $100
- Likely reversal following the recent upward correction
- Stock price got close to the downward trend line
ICE IntercontinentalExchange Group, Inc. - Financials
- Stock below the resistance level of $86
- Likely reversal following the recent upward correction
- The support level of $77 - initial downside profit target level
Contrarian approach
Top 2 Buy Candidates
MRO Marathon Oil - Energy
- Potential bottoming pattern - falling wedge
- Technical oversold conditions - upward correction play
- Resistance level and profit target level of $5.0
VNO Vornado Realty Trust - Real Estate
- Technical oversold conditions - upward correction play
- Breakout above medium-term downward trend line
- Potential upside profit target and the resistance level of $46
Top 2 Sell Candidates
HUM Humana, Inc. - Health Care
- Stock price got close to the downward trend line
- The market remains below resistance level of $330
- Downward reversal following recent rally
PEP Pepsico, Inc. - Consumer Staples
- Stock remains below downward trend line
- The support level of $117.5-125.0 - downside profit target level
Conclusion
In our opinion, the following stock trades are justified from the risk/reward point of view between April 8 and April 14:
Long: WAT, WBA, AMD, MRO, VNO
Short: CVX, EXR, ICE, HUM, PEP
Thank you.
Paul Rejczak
Stock Trading Strategist
Sunshine Profits - Effective Investments through Diligence and Care
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Disclaimer
All essays, research and information found above represent analyses and opinions of Paul Rejczak and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Paul Rejczak and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Rejczak is not a Registered Securities Advisor. By reading Paul Rejczak's reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
