In the last five trading days (December 30 – January 5) the broad stock market has fluctuated following its record-breaking run-up. The S&P 500 index has reached new record high of 3,769.90 on Monday before retracing most of its December advances.
The S&P 500 has lost 0.25% between December 30 open and January 5 close. In the same period of time our five long and five short stock picks have lost 0.29%. So stock picks basically followed the broad stock market’s performance last week. Our long stock picks have gained 0.46%, but short stock picks have resulted in a loss of 1.04%.
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 30 open – January 5 close % change): NVDA (+3.19%), INTC (+3.05%), ABBV (+1.32%), VRTX (-2.73%), FB (-2.51%)
Short Picks (December 30 open – January 5 close % change): DUK (-0.19%), SO (-0.53%), MPC (+2.88%), VLO (+3.07%), SPG (-0.05%)
Average long result: +0.46%, average short result: -1.04%
Total profit (average): -0.29%
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 6 – Tuesday, January 12 period.
We will assume the following: the stocks will be bought or sold short on the opening of today’s trading session (January 6) and sold or bought back on the closing of the next Tuesday’s trading session (January 12).
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 1.65% from the closing price on December 3. The strongest sector was Materials XLB, as it gained 4.67%. The Energy XLE gained 4.28% and Technology XLK gained 3.35%.
On the other hand, the weakest sector was Real Estate XLRE, as it lost 2.83% in a month. The Utilities XLU lost 2.26% and Industrials XLI lost 0.65%.
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 Materials, 2 x Energy, 1 x Technology
- sells: 2 x Real Estate, 2 x Utilities, 1 x Industrials
ECL Ecolab, Inc. - Materials
- Stock remains above the support level of $212.50
- Possible breakout above short-term consolidation
- The resistance level is at $220-225
CE Celanese Corp. – Materials
- Possible breakout above month-long downward trend line
- The support level is at $125.00 and the resistance level is at $137.50
KMI Kinder Morgan Inc. – Energy
- Stock broke above the downward trend line – uptrend continuation play
- The support level is at $13.40 and resistance level is at $15, among others
VLO Valero Energy Corp. – Energy
- Stock remains above medium-term upward trend line - uptrend continuation play
- The resistance level is at $62 and support level is at $50-52
NVDA NVIDIA Corp. – Technology
- Stock remains above medium-term upward trend line
- The support level is at $490-510 and the nearest important resistance level is at $555
PLD ProLogis, Inc. – Real Estate
- Stock broke below month-long upward trend line
- Downtrend continuation play
- The support level is at $94 – short-term downside profit target level
SPG Simon Property Group, Inc. – Real Estate
- Possible breakdown below short-term consolidation
- Stock remains below downward trend line
- The resistance level is at $86-90 and support level is at $78-80 – short-term downside profit target level
DUK Duke Energy Corp. - Utilities
- Possible bear flag pattern – stock may extend the downtrend
- The resistance level is at $92
- The support level is at $86 – short-term target profit level
PEG Public Service Enterprise - Utilities
- Stock trades below its previous local lows
- Downtrend continuation play
- The support level is at $54 – short-term downside target profit level
HON Honeywell Intl - Industrials
- Possible medium-term topping pattern
- The support level is at $205
- The resistance level remains at $215
In our opinion, the following stock trades are justified from the risk/reward point of view between January 6 and January 12:
Long: ECL, CE, KMI, VLO, NVDA
Short: PLD, SPG, DUK, PEG, HON
Stock Trading Strategist
Sunshine Profits - Effective Investments through Diligence and Care