In the last five trading days (December 9 – December 15) the broad stock market has been trading within a short-term consolidation following its recent record-breaking run-up. The S&P 500 index has reached new record high of 3,712.39 a week ago on Wednesday. Then it retraced some of the advance before going back up on Monday-Tuesday this week.
The S&P 500 index has lost 0.31% between December 9 open and December 15 close. In the same period of time our five long and five short stock picks have gained 1.32%. Stock picks were relatively much stronger than the broad stock market last week. Our long stock picks have gained 0.91% and short stock picks have resulted in a gain of 1.73%. So short stock picks’ performance outpaced the benchmark return on the downside.
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.
Our last week’s portfolio result:
Long Picks (December 9 open – December 15 close % change): XOM (+0.77%), EOG (+0.62%), PGR (+4.73%), BK (+0.51%), MMM (-2.10%)
Short Picks (December 9 open – December 15 close % change): LNT (-0.81%), CNP (-1.64%), ABBV (-4.28%), DHR (-0.16%), APTV (-1.75%)
Average long result: +0.91%, average short result: +1.73%
Total profit (average): +1.32%
Stock Pick Update performance chart since Nov 18, 2020:
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, December 16 – Tuesday, December 22 period.
We will assume the following: the stocks will be bought or sold short on the opening of today’s trading session (December 16) and sold or bought back on the closing of the next Tuesday’s trading session (December 22).
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 3.05% from the closing price on November 13. The strongest sector was Energy XLE again, as it gained 19.35%. The Financials XLF gained 5.88% and Communication Services XLC gained 4.98%.
On the other hand, the weakest sector was Utilities XLU, as it lost 4.48% in a month. The Real Estate lost 2.32% and Consumer Staples XLP lost 0.47%.
Based on the above, we decided to choose our stock picks for the next week. We will choose our 5 long and 5 short candidates using trend-following approach:
- buys: 2 x Energy, 2 x Financials, 1 x Communication Services
- sells: 2 x Utilities, 2 x Real Estate, 1 x Consumer Staples
XOM Exxon Mobil Corp. - Energy
- Stock broke above its short-term downward trend line, uptrend continuation play
- The support level is at $40 and resistance level is at $44-47 (short-term target profit level)
COP ConocoPhillips – Energy
- Possible short-term bull flag pattern, uptrend continuation play
- The support level is at $42 and resistance level is at $45-50
WFC Wells Fargo & Co. – Financials
- Possible short-term bull flag pattern – uptrend continuation play
- The support level is at $29.50 and resistance level is at $30.00
BK Bank of New York Mellon Corp. – Financials
- Possible uptrend continuation – bull flag pattern
- The resistance level is at $40.75 and support level is at $39.00
FB Facebook, Inc. – Communication Services
- Stock may resume its uptrend following downward correction
- It’s trading above three-month-long upward trend line
- The support level is at $260-270 and resistance level is at $290-300
DUK Duke Energy Corp. – Utilities
- Stock trades along its two-month-long upward trend line
- Possible breakdown below the trend line
- The support level is at $86-90 – short-term downside target profit level
EVRG Evergy, Inc. – Utilities
- Stock remains below its downward trend line
- Short-term downtrend continuation play
- The resistance level is at $57 and support level is at $52 – short-term downside target profit level
SPG Simon Property Group, Inc. – Real Estate
- Possible medium-term topping pattern – breakdown below upward trend line
- The resistance level is at $92
- The support level is at $82 – short-term target profit level
CBRE CBRE Group, Inc. - Real Estate
- Possible medium-term topping pattern – breakdown below two-month-long upward trend line
- The support level is at $62 – short-term downside target profit level
KO Coca Cola Co. - Consumer Staples
- Possible medium-term rising wedge topping pattern
- The support level is at $51.50 – short-term target profit level
- The resistance level remains at $54
In our opinion, the following stock trades are justified from the risk/reward point of view between December 16 and December 22:
Long: XOM, COP, WFC, BK, FB
Short: DUK, EVRG, SPG, CBRE, KO
Stock Trading Strategist
Sunshine Profits - Effective Investments through Diligence and Care