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 Thursday, January 2 - Tuesday, January 7 period.
The Stock Pick Update for the December 18 - December 24, 2019 period resulted in a modest loss of 0.1%. Below we include statistics and the details of the previous updates. Only the above - mentioned update for a week-long period ending on December 24 is verified by the alert's release on our website, but before we decided to make it available to you, we tested our approach and our stock picks performed very well:
- Dec 24, 2019
Long Picks: VTR, CHRW, CF, IDXX, CINF
Short Picks: LLY, MS, AES, DRE, AME
Average long result: 1.12%, average short result: -1.31%
Total profit (average): -0.10%
- Dec 17, 2019
Long Picks: WMT, FAST, SEE, ZTS, SLB
Short Picks: BMY, PSX, SST, LW, EMR
Average long result: 2.45%, average short result: -1.69%
Total profit (average): 0.38%
- Dec 10, 2019
Long Picks: PSA, OXY, DE, ILMN, TTWO
Short Picks: ZTS, DIS, LW, WELL, PSX
Average long result: 0.87%, average short result: 1.30%
Total profit (average): 1.08%
- Dec 03, 2019
Long Picks: PSA, EXC, FANG, ILMN, FLT
Short Picks: ABBV, NVDA, CHTR, WELL, AEP
Average long result: -0.03%, average short result: 1.55%
Total profit (average): 0.76%
- Nov 26, 2019
Long Picks: VTR, YUM, HAL, ADI, CME
Short Picks: MSFT, JPM, ABT, WELL, LOW
Average long result: 1.89%, average short result: -0.50%
Total profit (average): 0.69%
The broad stock market has reached historically high levels recently. Last year's breathtaking December correction 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 the 3,200 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 (January 2) and sold or bought back on the closing of the next Tuesday's trading session (January 7).
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 a S&P 500's 30-minute chart along with market sector indicators for the past month. The S&P 500 index has gained 2.86% since December 2. The strongest sector was Consumer Staples XLE, as it gained 6.03%. The Technology XLK gained 4.32% and the Health Care XLV gained 3.47%.
On the other hand, the weakest sector was Industrials XLI, as it lost 0.2%. The Real Estate XLRE gained just 1.14% and Communication Services XLC gained 2.26% in the last 30 days.
However, the Real Estate XLRE trades within a strongest short-term uptrend, and the Financials XLF is the weakest in the short-term
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 the trend-following approach:
Contrarian approach (betting against the recent trend):
- buys: 2 x Industrials, 1 x Communication Services
- sells: 1 x Consumer Staples, 1 x Technology, 1 x Real Estate
Trend-following approach:
- buys: 1 x Consumer Staples, 1 x Technology
- sells: 1 x Industrials, 1 x Communication Services
Contrarian approach
Top 3 Buy Candidates
GD General Dynamics Corp. - Industrials
The GD stock trades at its early December local low. Furthermore, there is a potential support level at around $172-174, marked by October local lows. On the other hand, the resistance level is at $180.
CHRW C.H. Robinson Worldwide, Inc. - Industrials
The C. H. Robinson Worldwide Inc. stock is our long pick again. The market broke above its month-long downward trend line recently. For now, it looks like a correction within a medium-term downtrend. However, we could see an attempt at retracing more of the late October sell-off.
CTL CenturyLink, Inc. - Communication Services
CTL stock remains within a short-term consolidation. The market is at September's local high that's acting as a support level. We may see an attempt at retracing some of the declines.
Top 3 Sell Candidates
PM Philip Morris Intl Inc. - Consumer Staples
The PM stock broke below its month-long upward trend line. But will it continue lower? We can see some quite clear negative technical divergences. So it may be a good contrarian short play in the near future.
ANSS Ansys, Inc. - Technology
That may be a little bit of guessing, but there's a potential rising wedge pattern following November's uptrend. The resistance level remains at around $260. Will the ANSS stock give a short-term profit on the short side? We think so.
HST Host Hotels & Resorts Inc. - Real Estate
The HST stock begs for a downward correction. It has broken below the upward trend line recently. And we can see some technical overbought conditions.
Trend-following approach
Top 2 Buy Candidates
CLX Clorox Co. - Consumer Staples
Here we can see attempts at breaking above the resistance level of around $153.5-154.0. The CLS stock trades within a short-term consolidation following the early December advance.
CSCO Cisco Systems, Inc. - Technology
The CSCO stock may continue its recent advance following breaking above a potential flag pattern. For now, it looks like a relatively flat correction within an uptrend.
Top 2 Sell Candidates
JCI Johnson Controls Intl plc - Industrials
The JCI stock broke below its two-month long upward trend line in the middle of December. Since then, it's been trading within a short-term consolidation. We may see attempts at breaking below the support level of around $40.20-40.25.
EA Electronic Arts, Inc. - Communication Services
Here we can see a breakdown below the month-long upward trend line. The EA stock may retrace some of its recent advance in the near future.
Conclusion
In our opinion, the following stock trades are justified from the risk/reward point of view between January 2 and January 7:
Long: GD, CHRW, CTL, CLX, CSCO
Short: PM, ANSS, HST, JCI, EA
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.
