In the last five trading days (January 6 – January 12) the broad stock market has extended its record-breaking run-up. The S&P 500 index has reached new record high of 3,826.69 on Friday following new stimulus package hopes.
The S&P 500 has gained 2.40% between January 6 open and January 12 close. In the same period of time our five long and five short stock picks have gained 1.59%. Stock picks were relatively weaker than the broad stock market’s performance last week. However, our long stock picks have gained 3.35% outperforming the index. Short stock picks have resulted in a loss of 0.17%.
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 (January 6 open – January 12 close % change): ECL (+1.65%), CE (+3.80%), KMI (+7.87%), VLO (+1.45%), NVDA (+1.98%)
Short Picks (January 6 open – January 12 close % change): PLD (-1.43%), SPG (+1.70%), DUK (-1.13%), PEG (+1.97%), HON (-0.27%)
Average long result: +3.35%, average short result: -0.17%
Total profit (average): +1.59%
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, January 13 – Tuesday, January 19 period.
We will assume the following: the stocks will be bought or sold short on the opening of today’s trading session (January 13) and sold or bought back on the closing of the next Tuesday’s trading session (January 19).
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 3.63% from the closing price on December 10. The strongest sector was Financials XLF, as it gained 9.59%. The Materials XLB gained 9.24% and Consumer Discretionary XLY gained 7.27%.
On the other hand, the weakest sector was Real Estate XLRE again, as it lost 1.97% in a month. The Communication Services XLC lost 1.81% and Consumer Staples XLP lost 0.75%.
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 Financials, 2 x Materials, 1 x Consumer Discretionary
- sells: 2 x Real Estate, 2 x Communication Services, 1 x Consumer Staples
AXP American Express Co. - Financials
- Stock remains above its medium- and short-term upward trend lines
- Possible breakout above the previous high
- The resistance level is at $124 and support level is at $113
SPGI S&P Global Inc. – Financials
- Possible upward reversal from the support level of $212-213
- The resistance level is at $325 – short-term upside profit target level
SHW Sherwin Williams Co. – Materials
- Stock broke above the short-term downward trend line – uptrend continuation play
- The support level is at $710 and resistance level is at $740-750
ECL Ecolab, Inc. – Materials
- Uptrend continuation play
- The resistance level is at $225.0-227.5 and support level is at $212.5
HD Home Depot, Inc. – Consumer Discretionary
- Stock broke above two-month-long downward trend line
- Short-term uptrend continuation play
- The support level is at $260.0 and the nearest important resistance level is at $277.5
PLD ProLogis, Inc. – Real Estate
- Stock broke below month-long upward trend line
- Downtrend continuation play
- The support level is at $91 – short-term downside profit target level
WY Weyerhauser Co. – Real Estate
- Possible medium-term topping pattern
- The resistance level is at $34.50 and support level is at $30.00 – short-term downside profit target level
DIS Walt Disney Co. - Communication Services
- Possible medium-term downward reversal pattern
- The resistance level is at $190-200
- The support level is at $165 – short-term downside target profit level
TTWO Take-Two Interactive Software, Inc. - Communication Services
- Possible medium-term downward reversal pattern
- Short-term downtrend continuation play
- The support level is at $190 – short-term downside target profit level
EL Estee Lauder Cos. - Consumer Staples
- Possible medium-term topping pattern after breaking below two-month-long upward trend line
- The support level is at $240
- The resistance level remains at $265
In our opinion, the following stock trades are justified from the risk/reward point of view between January 13 and January 19:
Long: AXP, SPGI, SHW, ECL, HD
Short: PLD, WY, DIS, TTWO, EL
Stock Trading Strategist
Sunshine Profits - Effective Investments through Diligence and Care