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 8 - Tuesday, January 14 period.
The Stock Pick Update for the Thursday, January 2 - Tuesday, January 7, 2020 period resulted in a modest loss of 0.09%. The S&P 500 index has lost 0.23% in the same period. Below we include statistics and the details of the previous updates. Only the updates for week-long periods ending on December 24 and January 7 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 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 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 3.82% since December 6. The strongest sector was Energy XLE, as it gained 7.72%. The Technology XLK gained 6.92% and the Consumer Discretionary XLY gained 4.65%.
On the other hand, the weakest sector was Real Estate XLRE, as it gained just 0.10%. The Consumer Staples XLP gained 0.16% and Materials XLB gained 0.40% in the last 30 days.
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 Real Estate, 1 x Consumer Staples, 1 x Materials
- sells: 1 x Energy, 1 x Technology, 1 x Consumer Discretionary
Trend-following approach:
- buys: 1 x Energy, 1 x Technology
- sells: 1 x Real Estate, 1 x Consumer Staples
Contrarian approach
Top 3 Buy Candidates
VTR Ventas, Inc. - Real Estate
The VTR stock remains slightly below its two-month-long downward trend line. It may act as a neckline of the inverse head and shoulders pattern. If the price breaks above the line, we could see short-term advance towards the resistance level of $60-62.
COST Costco Wholesale Corp. - Consumer Staples
The Costco Wholesale Corp. stock continues to trade above the support level of $290. We could see an attempt at breaking above a potential falling wedge pattern. The resistance level is at around $295.
ECL Ecolab, Inc. - Materials
The stock retraced its mid-December advance and it is back at the support level of its previous consolidation. Therefore we may see an attempt at reversing short-term downtrend here.
Top 3 Sell Candidates
PXD Pioneer Natural Resources Corp. - Energy
We can see some clear technical overbought conditions on the Pioneer Natural Resources Corp. daily chart. The market may retrace some of its recent run-up. So it is a short-term downward correction play.
AMD Advanced Micro Devices, Inc. - Technology
The AMD stock is a similar short-term downward correction play. We can see a bearish divergence between the rising price and the falling RSI indicator. In addition, there's a short-term rising wedge pattern.
VFC VFCorp - Consumer Discretionary
The VFCorp stock traded within a strong uptrend in December. The market is currently consolidating as it remains close to the price of $100. We may see it retracing some of the recent advance in the near future.
Trend-following approach
Top 2 Buy Candidates
COG Cabot Oil & Gas Corp. - Energy
The COG stock trades within a short-term consolidation following breaking higher in December. For now, it looks like a bullish flag pattern. If it breaks higher, we could see an advance towards $19 level.
CSCO Cisco Systems, Inc. - Technology
The CSCO stock is our long pick again. It may continue the recent advance following breaking above a potential bullish flag pattern. For now, it looks like a relatively flat correction within an uptrend.
Top 2 Sell Candidates
AVB Avalonbay Communities, Inc. - Real Estate
The Avalonbay Communities, Inc. stock broke below its short-term upward trend line yesterday. If it breaks below the support level of around $204, we could see a decline towards $200 level.
PEP Pepsico, Inc. - Consumer Staples
The PEP stock broke below its recent local low. Is this a double top reversal pattern? We may see some more selling pressure and a decline towards $130 level. The resistance level remains at around $135.
Conclusion
In our opinion, the following stock trades are justified from the risk/reward point of view between January 8 and January 14:
Long: VTR, COST, ECL, COG, CSCO
Short: PXD, AMD, VFC, AVB, PEP
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.
