Let's check which stock 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, February 19 - Tuesday, February 25 period.
The Stock Pick Update for the Wednesday, February 11 - Tuesday, February 18, 2020 period resulted in a modest loss of 0.22%. The S&P 500 index has lost just 0.01% in the same period. So our stock picks were relatively slightly weaker than the broad stock market. However, our average long result was better than the broad stock market's gauge.
Our last week's short stock picks weren't profitable, as they worsened our overall result, but the stock market has entered a period of short-term uncertainty following recent rally. If stocks were in a more prolonged downward correction, 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:
- Feb 18, 2020
Long Picks (Feb 11 open - Feb 18 close % change): PSX (-2.96%), DD (+1.00%), PNC (-2.96%), NRG (+2.83%), EXR (+3.66%)
Short Picks (Feb 11 open - Feb 18 close % change): NEE (+3.91%), PLD (+1.76%), AMD (+4.33%), PXD (-2.28%), DOW (-3.92%)
Average long result: +0.32%, average short result: -0.76%
Total profit (average): -0.22% - Feb 11, 2020
Long Picks (Feb 5 open - Feb 11 close % change): PSX (-0.11%), MS (+1.68%), DD (-1.09%), PEG (-1.98%), NTAP (+3.59%)
Short Picks (Feb 5 open - Feb 11 close % change): ETR (+1.93%), NOW (-2.72%), PEAK (+0.69%), HAL (-2.07%), STT (+0.91%)
Average long result: +0.42%, average short result: +0.29%
Total profit (average): +0.36% - Feb 4, 2020
Long Picks (Jan 29 open - Feb 4 close % change): SLB (-0.67%), VMC (+2.26%), WFC (-0.34%), CNP (+0.72%), CTSH (+0.94%)
Short Picks (Jan 29 open - Feb 4 close % change): ATO +0.78%), AAPL (-1.73%), PEAK (-0.11%), KMI (+0.28%, ex div. -$0.25), NEM (-0.16%)
Average long result: +0.58%, average short result: +0.19%
Total profit (average): +0.39%
The broad stock market has reached historically high levels recently. The breathtaking correction in December of 2018 was followed by the record-breaking comeback rally. The late October - early November breakout led to another leg higher, as the S&P 500 index broke above 3,300 mark. But will the rally continue? If the market goes higher, which stocks are going to beat the index? And if it reverses down from here, which stocks are about to outperform on the short side?
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.
We will assume the following: the stocks will be bought or sold short on the opening of today's trading session (February 19) and sold or bought back on the closing of the next Tuesday's trading session (February 25).
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 1.62% since January 17. The strongest sector was the Utilities XLU, as it gained 7.06%. The Real Estate XLRE gained 5.84% and the Technology XLK gained 5.29%.
On the other hand, the weakest sector was the Energy XLE, as it lost 9.06%. The Health Care XLV lost 0.89% and the Materials XLB lost 0.84%.
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 a contrarian approach, and top 2 long and top 2 short candidates using trend-following approach:
Contrarian approach (betting against the recent trend):
- buys: 1 x Energy, 1 x Health Care, 1 x Materials
- sells: 1 x Utilities, 1 x Real Estate, 1 x Technology
Trend-following approach:
- buys: 1 x Utilities, 1 x Real Estate
- sells: 1 x Energy, 1 x Health Care
Contrarian approach
Top 3 Buy Candidates
XEC Cimarex Energy Co. - Energy
- Declining wedge pattern - potential upward reversal
- Technically oversold - short-term correction play
- Potential resistance level of $42-44
BSX Boston Scientific Corp. - Health Care
- The price remains above support level of $41.5-42.0
- Potential breakout above month-long downward trend line
- Potential resistance level of $43.5-44.5 (upside profit target level)
NUE Nucor Corp. - Materials
- Potential breakout above declining wedge pattern
- Positive technical divergences
- The price bounces off support level of $47
Top 3 Sell Candidates
AEE Ameren Corp. - Utilities
- Parabolic price rise along with technical overbought
- Downward correction play
CBRE CBRE Group, Inc. - Real Estate
- Potential topping pattern
- Negative technical divergences
- The resistance level of $64-65
INTC Intel Corp. - Technology
- Breakout below short-term upward trend line
- Negative technical divergences
- The resistance level of $68-69 - downward correction play
Trend-following approach
Top 2 Buy Candidates
PEG Public Service Enterprise - Utilities
- Breakout above downward trend line
- The support level remains at $57.5-58.0
- Resistance level and profit target level of $60-62
SPG Simon Property Group, Inc. - Real Estate
- Potential breakout above bull flag pattern
- Upward trend may resume, potential upside price target of $146-148
Top 2 Sell Candidates
SLB Schlumberger Ltd. - Energy
- Bear flag pattern following January's decline
- Negative technical divergence confirming downtrend
- The resistance level of $35.0-35.5
A Agilent Technologies, Inc. - Health Care
- Potential bear flag - rising wedge pattern following January decline
- Potential downside price target of $75-80
Conclusion
In our opinion, the following stock trades are justified from the risk/reward point of view between February 19 and February 25:
Long: XEC, BSX, NUE, PEG, SPG
Short: AEE, CBRE, INTC, SLB, A
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.
