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 29 - Tuesday, February 4 period.
The Stock Pick Update for the Thursday, January 22 - Tuesday, January 28, 2020 period resulted in a loss of 0.54%. The S&P 500 index has lost 1.62% in the same period. So our stock picks were relatively stronger than the broad stock market. Just imagine what long-term 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 since December 24 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 28, 2020
Long Picks (Jan 22 open - Jan 28 close % change): HFC (-2.67%), DD (-6.12%), BEN (-2.34%), XLNX (-3.60%), DIS (-4.21%)
Short Picks (Jan 22 open - Jan 28 close % change): AAPL (-0.28%), FB (-2.03%), HST (-4.09%), COP (-4.11%), WRK (-3.00%)
Average long result: +3.87%, average short result: -2.61%
Total profit (average): +0.63% - 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. The breathtaking correction in December of 2018 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 3,300 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 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 S&P 500's 30-minute chart along with market sector indicators for the past month. The S&P 500 index has gained 1.13% since December 27. The strongest sector was the Utilities XLU, as it gained 6.67%. The Technology XLK gained 5.44% and the Real Estate XLRE gained 4.20%.
On the other hand, the weakest sector was the Energy XLE, as it lost 8.09%. The Materials XLB lost 3.70%, and the Financials XLF lost 1.85%.
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 Utilities, 1 x Technology, 1 x Real Estate
Trend-following approach:
- buys: 1 x Utilities, 1 x Technology
- sells: 1 x Energy, 1 x Materials
Contrarian approach
Top 3 Buy Candidates
SLB Schlumberger Ltd. - Energy
The SLB stock has been trading within a strong downtrend recently. The stock is one of the most technically oversold in its sector. So it is our upward correction play. If the market bounces of a support level of around $33.5, it could get back to the previously broken support level of $35.5-36.0.
VMC Vulcan Materials Co. - Materials
The Vulcan Materials Co. stock trades within a medium-term consolidation. But we can see a month-long wedge pattern and the market could break higher out of it. The nearest important resistance level is at around $144-145.
WFC Wells Fargo & Co. - Financials
The WFC stock was extending its downtrend recently. However, we can see a bottoming wedge pattern along with some positive RSI indicator divergence and the oversold condition. So it is another upward correction play in our Stock Picks portfolio.
Top 3 Sell Candidates
ATO Atmos Energy Corp. - Utilities
The Atmos Energy Corp. stock broke below its recent upward trend line. We also can see technical overbought conditions. The market could retrace some of its January rally. The nearest important support level is at $113-114.
AAPL Apple, Inc. - Technology
The Apple, Inc. stock is our short stock pick again. It will likely open much higher today, following yesterday's quarterly earnings release. But it could be a good moment to sell that stock in a short-term. We can see some topping price action along with technical overbought.
PEAK Healthpeak Properties Inc - Real Estate
The PEAK stock has broken below the short-term upward trend line yesterday. We may see a decline, as the market would likely retrace some of the recent advance. We also can see relatively weak trading action along the previous high of around $37.50.
Trend-following approach
Top 2 Buy Candidates
CNP CenterPoint Energy, Inc. - Utilities
The CenterPoint Energy, Inc. stock trades within a possible bullish flag pattern since half of December. If it breaks higher, we could see and advance towards $28.0-28.5.
CTSH Cognizant Technology Solutions Corp. - Technology
Here we can see a similar bullish flag pattern and a potential breakout higher. The CTSH stock remains within a two-week long consolidation. For now, it looks like a relatively flat correction within an uptrend from the early January low.
Top 2 Sell Candidates
KMI Kinder Morgan Inc. - Energy
The Kinder Morgan Inc. stock reversed its short-term upward course last week following breakout above the previous local high. We could see some more declines towards the lower boundary of two-month-long expanding triangle pattern. There are also some negative technical divergences. Take notice that KMI stock will be ex-dividend on January 31 (dividend of $0.25) so we will include that in our trades statistics.
NEM Newmont Goldcorp Corp. - Materials
The NEM stock has been trading within a potential rising wedge pattern. If it breaks below the month-long upward trend line, we could see a decline towards $40-42. We also can see negative technical divergences.
Conclusion
In our opinion, the following stock trades are justified from the risk/reward point of view between January 29 and February 4:
Long: SLB, VMC, WFC, CNP, CTSH
Short: ATO, AAPL, PEAK, KMI, NEM
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.
