The broad stock market has extended its medium-term uptrend in the last five trading days (July 29 - August 4). The S&P 500 index broke above its late July local highs along 3,280 level and it crossed the 3,300 mark. More than four months ago on March 23, the market sold off to 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 erased more than a third of the broad stock market value. But the index has rallied back closer to record high again. It is currently just 2.6% below the mentioned February's record high.

The S&P 500 index has gained 2.46% between July 29 and August 4. In the same period of time our five long and five short stock picks have gained 0.75%. So stock picks were relatively weaker than the broad stock market. Our long stock picks have gained 0.81% and short stock picks have resulted in a gain of 0.68%.

There are risks that couldn't be avoided in trading. Hence the need for proper money management and a relatively diversified stock portfolio. This is especially important if trading on a time basis - without using stop-loss/ profit target levels. We are just buying or selling stocks at open on Wednesday and selling or buying them back at close on the next Tuesday.

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:

• August 4, 2020
  Long Picks (July 29 open - August 4 close % change): IFF (-2.27%), WBA (+0.24%), ED (-0.50%), XOM (-0.55%), WU (+7.13%)
  Short Picks (July 29 open - August 4 close % change): HES (+1.34%), XLNX (+2.30%), SPGI (-0.71%), APD (-3.33%), KO (-3.01%)
  
  Average long result: +0.81%, average short result: +0.68%
  Total profit (average): +0.75%
• July 28, 2020
  Long Picks (July 22 open - July 28 close % change): MLM (-5.87%), MCD (+1.57%), INTC (-19.84%), XOM (-1.36%), IRM (+2.58%)
  Short Picks (July 22 open - July 28 close % change): COG (-0.38%), WY (+6.86%), SPGI (-1.77%), APD (-0.40%), HD (+1.02%)
  
  Average long result: -4.59%, average short result: -1.07%
  Total profit (average): -2.83%
• July 21, 2020
  Long Picks (July 15 open - July 21 close % change): DOW (-1.40%), INTC (+2.83%), MCD (-0.47%), XOM (-0.84%), HST (-1.54%)
  Short Picks (July 15 open - July 21 close % change): COG (+4.57%), VNO (-5.52%), AON (+2.30%), LIN (+1.36%), AAPL (-2.01%)
  
  Average long result: -0.28%, average short result: -0.14%
  Total profit (average): -0.21%

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, August 5 - Tuesday, August 11 period.

We will assume the following: the stocks will be bought or sold short on the opening of today's trading session (August 5) and sold or bought back on the closing of the next Tuesday's trading session (August 11).

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 gained 6.11% from the closing price on July 1. The strongest sector was Technology XLK, as it gained 8.35%. The Consumer Staples XLP gained 7.85% and Materials XLB gained 7.81%.

On the other hand, the weakest sector was Energy XLE, as it gained just 0.35% in a month. The Real Estate XLRE gained 1.32% and Financials XLF gained 4.62%.

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 Technology, 1 x Consumer Staples, 1 x Materials
• 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 Technology, 1 x Consumer Staples

Trend-following approach

Top 3 Buy Candidates

V Visa Inc. - Technology

• Stock remains above two-month-long upward trend line
• Potential medium-term uptrend continuation
• The resistance level of $200

WBA Walgreens Boots Alliance, Inc. - Consumer Staples

• Potential short-term uptrend continuation pattern - bull flag
• The resistance level of $44 (short-term upside profit target)
• The support level remains at $38-39

ECL Ecolab, Inc. - Materials

• Stock remains above the support level of $185
• Potential medium-term bull flag pattern
• The resistance level and upside profit target level at $205-215

Top 3 Sell Candidates

COP ConocoPhillips - Energy

• The price remains below downward trend line
• The resistance level is at $40.0-42.5
• The support level is at $30 (downside profit target level)

CCI Crown Castle Intl Corp. - Real Estate

• Stock broke below its month-long upward trend line
• Downward correction play
• The close support level is at $160

SPGI S&P Global Inc. - Financials

• Potential medium-term topping pattern - rising wedge pattern
• The support level is at $330 (initial downside profit target level)

Contrarian approach

Top 2 Buy Candidates

XOM Exxon Mobil Corp. - Energy

• Stock may resume its medium-term uptrend after breaking above the downward trend line
• Potential short-term bull flag pattern
• The resistance level of $50 - upside profit target level

PSA Public Storage, Inc. - Real Estate

• Stock broke above two-month-long downward trend line
• Upside profit target and the resistance level of $205-210

Top 2 Sell Candidates

PYPL PayPal Holdings, Inc. - Technology

• Stock trades within a potential medium-term topping pattern following recent rally
• Negative technical divergence - RSI indicator
• The support level is at $185 - short-term downside profit target level

K Kellogg Co. - Consumer Staples

• Potential medium-term topping pattern
• Stock may break below its over two-month-long upward trend line
• The support level of $68 - short-term downside profit target level

Conclusion

In our opinion, the following stock trades are justified from the risk/reward point of view between August 5 and August 11:

Long: V, WBA, ECL, XOM, PSA

Short: COP, CCI, SPGI, PYPL, K

Thank you.

Paul Rejczak
Stock Trading Strategist
Sunshine Profits - Effective Investments through Diligence and Care