Stock Pick Update: December 2 – December 8, 2020

In the last five trading days (November 25 – December 1) the broad stock market has extended its long-term uptrend. The S&P 500 index reached new record high of 3,678.45 yesterday. However, it is still relatively close to its November 9 local high.

The S&P 500 index has gained 0.74% between November 25 and December 1. In the same period of time our five long and five short stock picks have lost 0.89%. Stock picks were relatively weaker than the broad stock market following previous week’s advance of 6.57%. Our long stock picks have lost 2.46% 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.

Recently we modified our stock-picking strategy. Its year-long performance record shows that non-contrarian stock picks were outperforming contrarian stock picks by a large margin. Non-contrarian stock picks have gained 8.8% since Nov 19, 2019, and contrarian stock picks have lost 10.6% in the same period of time. Take a look at our Stock Pick Update performance chart. We included non-contrarian along with contrarian stock picks and the S&P 500 index performance (Tuesday’s open - Wednesday’s close):

Therefore we stopped picking stocks on a contrarian basis. Our 5 long and 5 short stocks portfolio is based solely on the trend-following approach.

Our last weeks’ portfolio result:

December 1, 2020
Long Picks (November 25 open – December 1 close % change): PXD (-9.27%), WMB (-4.44%), AXP (+0.36%), CME (+3.45%), UPS (-2.41%)
Short Picks (November 25 open – December 1 close % change): EXC (-2.85%), SRE (-3.44%), ABT (+1.35%), ABBV (+0.21%), KR (+1.32%)

Average long result: -2.46%, average short result: +0.68%
Total profit (average): -0.89%
November 24, 2020
Long Picks (November 18 open – November 24 close % change): WMB (+5.02%), PXD (+15.29%), WFC (+16.63%), C (+11.69%), ROK (+6.22%)
Short Picks (November 18 open – November 24 close % change): TXN (+2.32%), QCOM (-2.22%), DG (+1.94%), BBY (-4.67%), HRL (-8.24%)

Average long result: +10.97%, average short result: +2.17%
Total profit (average): +6.57%

The new Stock Pick Update performance chart:

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 2 – Tuesday, December 8 period.

We will assume the following: the stocks will be bought or sold short on the opening of today’s trading session (December 2) and sold or bought back on the closing of the next Tuesday’s trading session (December 8).

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 11.94% from the closing price on October 30. The strongest sector was Energy XLE, as it gained 28.59%. The Financials XLF gained 18.60% and Industrials XLI gained 15.68%.

On the other hand, the weakest sector was Utilities XLU, as it gained just 1.36% in a month. The Real Estate XLRI gained 8.26% and Consumer Staples XLP gained 8.40%.

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 Industrials
sells: 2 x Utilities, 2 x Real Estate, 1 x Consumer Staples

Buy Candidates

WMB Williams Cos., Inc. - Energy

Stock retraced some of its recent rally, uptrend continuation play
The support level is at $20.00 and resistance level is at $21.50-$22.00

COG Cabot Oil & Gas Corp. – Energy

Possible short-term bull flag pattern, uptrend continuation play
The support level is at $16.75 and resistance level is at $18.75 (short-term target profit level)

PGR Progressive Corp. – Financials