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, January 22 - Tuesday, January 28 period.
The Stock Pick Update for the Thursday, January 15 - Tuesday, January 21, 2020 period resulted in a gain of 0.63%. The S&P 500 index has gained 1.17% in the same period. However, our long stock picks have gained 3.87%. Unfortunately, short stock picks lost 2.61%, as the broad stock market rallied to new record highs. Just imagine what advantage we would have when stocks enter a more prolonged downward correction!
Below we include statistics and the details of the previous updates. Only the updates for week-long periods ending on December 24, January 14 and January 21 are 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:
- Jan 21, 2020
Long Picks: DD, CINF, CHD, CSCO, CTL
Short Picks: AMD, FB, IRM, SHW, COF
Average long result: +3.87%, average short result: -2.61%
Total profit (average): +0.63%
- Jan 14, 2020
Long Picks: VTR, COST, ECL, COG, CSCO
Short Picks: PXD, AMD, VFC, AVB, PEP
Average long result: +1.42%, average short result: +0.79%
Total profit (average): +1.10%
- Jan 7, 2020
Long Picks: GD, CHRW, CTL, CLX, CSCO
Short Picks: PM, ANSS, HST, JCI, EA
Average long result: -1.15%, average short result: +0.97%
Total profit (average): -0.09%
- 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%
- Nov 19, 2019
Long Picks: PSA, DUK, EBAY, MMC, MMM
Short Picks: C, CAT, TXN, PLD, SO
Average long result: 1.08%, average short result: -1.50%
Total profit (average): -0.21%
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 got close to the 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 (January 22) and sold or bought back on the closing of the next Tuesday's trading session (January 28).
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 3.60% since December 20. The strongest sector was the Technology XLK, as it gained 7.38%. The Communication Services XLC gained 5.39% and the Real Estate XLRE gained 5.30%.
On the other hand, the weakest sector was the Energy XLE, as it lost 1.61%. The Materials XLB lost 0.13%, and the Financials XLF gained just 0.38%.
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: 1 x Energy, 1 x Materials, 1 x Financials
- sells: 1 x Technology, 1 x Communication Services, 1 x Real Estate
Trend-following approach:
- buys: 1 x Technology, 1 x Communication Services
- sells: 1 x Energy, 1 x Materials
Contrarian approach
Top 3 Buy Candidates
HFC HollyFrontier Corp. - Energy
The HFC stock has extended its medium-term downtrend yesterday. But we can see some potential declining wedge bottoming pattern here. The support level is at around $45-46. On the other hand, resistance level is at $48-49.
DD DuPont de Nemours, Inc. - Materials
The DD stock is our long stock pick again. It has been relatively weak in the recent weeks following breaking below the early December local low. However, its short-term trading action is still quite bullish and we expect an upward correction. Potential resistance level is at $64-65.
BEN Franklin Resources, Inc. - Financials
The Franklin Resources, Inc. stock broke above its recent downward trend line on Thursday. We could see an attempt at retracing more of its November's decline. The resistance level is at around $26.00, among others.
Top 3 Sell Candidates
AAPL Apple, Inc. - Technology
The Apple, Inc. stock slightly extended its rally on Friday, as it reached the new record high. But we can see a bearish divergence between the rising price and the falling RSI indicator. In addition, there's been a breakdown below the recent upward trend line.
FB Facebook, Inc. - Communication Services
The Facebook, Inc. is our short stock pick again. The market continues to trade within a consolidation following its recent advances. It looks like a topping pattern before a downward correction. We can see some technical overbought conditions. So it is our short-term correction play.
HST Host Hotels & Resorts Inc. - Real Estate
The HST stock has broken below the short-term upward trend line yesterday. We may see an attempt at getting back to its recent local lows along the $17,30 level.
Trend-following approach
Top 2 Buy Candidates
XLNX Xilinx, Inc. - Technology
The Xilinx, Inc. stock broke above the short-term upward trend line. For now, it looks like a bullish flag pattern within an uptrend. The resistance level is at around $105-107.
DIS Walt Disney, Co. - Communication Services
The DIS stock continues to trade within a consolidation. We may see an attempt at breaking above two-month-long upward trend line. Then the market could continue its November rally and reach new highs.
Top 2 Sell Candidates
COP ConocoPhillips - Energy
The ConocoPhillips stock has broken below a month-long upward trend line yesterday. Will the market retrace more of its October - December rally? We certainly hope so, therefore we are choosing the stock to our short stock pick list today.
WRK WestRock Co. - Materials
The WRK stock broke below its three-month-long upward trend line. The market may retrace some more of its last autumn's advances. The nearest important support level is at around $38-40.
Conclusion
In our opinion, the following stock trades are justified from the risk/reward point of view between January 22 and January 28:
Long: HFC, DD, BEN, XLNX, DIS
Short: AAPL, FB, HST, COP, WRK
Thank you.
Paul Rejczak
Stock Trading Strategist
Sunshine Profits - Effective Investments through Diligence and Care
* * * * *
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.
