In the last five trading days (January 13 – January 19) the broad stock market has traded sideways. The S&P 500 index reached new record high of 3,826.69 on January 8 following new stimulus package hopes. Since then, it has been fluctuating. Last Friday the index got back to short-term support level of 3,750 before bouncing back higher again.
The S&P 500 has lost 0.09% between January 13 open and January 19 close. In the same period of time our five long and five short stock picks have lost 0.32%. Stock picks were relatively slightly weaker than the broad stock market’s performance last week. Our long stock picks have lost 0.62% and short stock picks have resulted in a loss of 0.02%.
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 13 open – January 19 close % change): AXP (+4.24%), SPGI (-0.46%), SHW (-2.11%), ECL (-2.95%), HD (-1.84%)
Short Picks (January 13 open – January 19 close % change): PLD (+3.19%), WY (+0.12%), DIS (-1.23%), TTWO (+0.14%), EL (-2.11%)
Average long result: -0.62%, average short result: -0.02%
Total profit (average): -0.32%
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, January 20 – Tuesday, January 26 period.
We will assume the following: the stocks will be bought or sold short on the opening of today’s trading session (January 20) and sold or bought back on the closing of the next Tuesday’s trading session (January 26).
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 2.05% from the closing price on December 17. The strongest sector was Energy XLE, as it gained 10.37%. The Financials XLF gained 8.51% and Materials XLB gained 5.69%.
On the other hand, the weakest sector was Consumer Staples XLP, as it lost 2.78% in a month. The Real Estate XLRE lost 1.43% and Communication Services XLC lost 0.71%.
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 Materials
- sells: 2 x Consumer Staples, 2 x Real Estate, 1 x Communication Services
COP ConocoPhillips - Energy
- Stock remains above the previous local highs - uptrend continuation play
- The resistance level is at $48 and support level is at $45
PXD Pioneer Natural Resources Co. – Energy
- Possible uptrend continuation following short-term correction
- The resistance level is at $137.50 – short-term upside profit target level
C Citigroup, Inc. – Financials
- Stock trades within a short-term consolidation following the recent run-up – uptrend continuation play
- The support level is at $62 and resistance level is at $68
SPGI S&P Global Inc. – Financials
- Possible upward reversal from the support level of $305-315
- The resistance level is at $325 – short-term upside profit target level
APD Air Products and Chemicals, Inc. – Materials
- Possible bull flag pattern - uptrend continuation play
- The support level is at $275-280 and the nearest important resistance level is at $295
WBA Walgreens Boots Aliance, Inc. – Consumer Staples
- Stock broke below the upward trend line – possible medium-term downward reversal
- The support level is at $44 – short-term downside profit target level
MNST Monster Beverage Corp. – Consumer Staples
- Possible medium-term topping pattern after breaking below upward trend line
- The resistance level is at $95 and support level is at $87 – short-term downside profit target level
SPG Simon Property Group, Inc. - Real Estate
- Possible medium-term downward reversal pattern
- The resistance level is at $96
- The support level is at $82-86 – short-term downside target profit level
EQR Equity Residential Property Trust - Real Estate
- Possible short-term downward reversal pattern
- The support level is at $57 – short-term downside target profit level
TTWO Take-Two Interactive Software, Inc. - Communication Services
- Short-term downtrend continuation play
- The support level is at $190
In our opinion, the following stock trades are justified from the risk/reward point of view between January 20 and January 26:
Long: COP, PXD, C, SPGI, APD
Short: WBA, MNST, SPG, EQR, TTWO
Stock Trading Strategist
Sunshine Profits - Effective Investments through Diligence and Care