The broad stock market has extended its short-term consolidation in the last five trading days (June 24 - June 30). More than three months ago on March 23, the S&P 500 index sold off to new medium-term low of 2,191.86. It was a stunning 35.4% below February 19 record high of 3,393.52. The corona virus and economic slowdown fears have erased more than a third of the broad stock market value. Then we saw huge come-back rally, as the index got back above 3,200 mark. In the first half of June the broad stock market has broken below its short-term upward trend line. Since then it has been trading within a consolidation following bouncing off 3,000 mark.
The S&P 500 index has lost 0.45% since last Wednesday's open. In the same period of time our five long and five short stock picks have lost just 0.04%. Stock picks were relatively slightly stronger than the broad stock market last week. Our long stock picks have lost 0.23% and short stock picks have resulted in a gain of 0.16%. The overall results remain relatively better than the S&P 500 index over last months.
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.
This means that our overall stock-picking performance can be summarized on the chart below. The assumptions are: starting with $100k, no leverage used. The data before Dec 24, 2019 comes from our internal tests and data after that can be verified by individual Stock Pick Updates posted on our website.
Below we include statistics and the details of our three recent updates:
- June 30, 2020
Long Picks (June 24 open - June 30 close % change): WY (+0.36%), CTSH (+3.76%), HIG (-0.57%), BSX (-2.39%), COP (-2.28%)
Short Picks (June 24 open - June 30 close % change): EW (-1.51%), WMB (0.00%), ETR (-0.27%), CCI (+2.04%), ADBE (-1.07%)
Average long result: -0.23%, average short result: +0.16%
Total profit (average): -0.04%
- June 23, 2020
Long Picks (June 17 open - June 23 close % change): BA (-3.41%), DLR (-0.81%), WLTW (+1.27%), BMY (+2.05%), HSY (-2.03%)
Short Picks (June 17 open - June 23 close % change): DHR (-0.23%), CLX (+1.76%), AEP (-1.58%), MMM (-1.47%), PLD (-6.67%)
Average long result: -0.58%, average short result: +1.64%
Total profit (average): +0.53%
- June 16, 2020
Long Picks (June 10 open - June 16 close % change): SLB (-11.06%), IEX (-4.63%), L (-10.45%), BSX (-4.33%), KR (-1.69%)
Short Picks (June 10 open - June 16 close % change): ABBV (-0.96%), COST (-1.67%), ADBE (+3.02%), VLO (-7.62%), NOC (-4.84%)
Average long result: -6.43%, average short result: +2.41%
Total profit (average): -2.01%
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, July 1 - Tuesday, July 7 period.
We will assume the following: the stocks will be bought or sold short on the opening of today's trading session (July 1) and sold or bought back on the closing of the next Tuesday's trading session (July 7).
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 2.33% from the closing price on May 28. The strongest sector was Technology XLK, as it gained 8.30%. The Consumer Discretionary XLY gained 3.42% and Materials XLB gained 2.20%.
On the other hand, the weakest sector was Utilities XLU, as it lost 4.00% in a month. The Financials XLF lost 1.66% and Energy XLE lost 1.48%.
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 trend-following approach, and top 2 long and top 2 short candidates using contrarian approach:
- buys: 1 x Technology, 1 x Consumer Discretionary, 1 x Materials
- sells: 1 x Utilities, 1 x Financials, 1 x Energy
Contrarian approach (betting against the recent trend):
- buys: 1 x Utilities, 1 x Financials
- sells: 1 x Technology, 1 x Consumer Discretionary
Top 3 Buy Candidates
INTC Intel Corp. - Technology
- Stock broke above month-long downward trend line
- Potential medium-term uptrend continuation
- The resistance level of $61-65 (initial upside profit target level)
F Ford Motor Co. - Consumer Discretionary
- Stock is above its June downward trend line
- The resistance level and upside profit target level at $65
- The support level is at $5.75
PPG PPG Industries, Inc. - Materials
- Potential advance after breaking above downward trend line
- The resistance level of $115 (short-term upside profit target)
- The support level is at $100
Top 3 Sell Candidates
XEL Xcel Energy - Utilities
- Stock trades below the broken upward trend line
- The resistance level remains at $65-67
- The support level of $58-60 (initial downside profit target level)
BLK Blackrock, Inc. - Financials
- Breakdown below medium-term rising wedge pattern
- The support level of $500-520 - short-term downside profit target level
EOG EOG Resources, Inc. - Energy
- Stock is fluctuating after breaking below its upward trend line
- The support level is at $42.50 (initial downside profit target level)
Top 2 Buy Candidates
DTE DTE Energy Co. - Utilities
- Stock may resume its uptrend after breaking above the downward trend line
- The resistance level of $110-115 - upside profit target level
AIG American Intl Group, Inc. - Financials
- Stock broke above its month-long downward trend line
- Upside profit target and the resistance level of $36-40
Top 2 Sell Candidates
MSFT Microsoft Corp. - Technology
- Stock trades within a potential medium-term topping pattern (rising wedge)
- Negative technical divergence between the price and RSI indicator
- The resistance level is at $205 and support level is at $185-195 - initial downside profit target level
EBAY eBay, Inc. - Consumer Discretionary
- Potential medium-term topping pattern following recent rally
- Downward correction play
- The support level of $47 - short-term downside profit target level
In our opinion, the following stock trades are justified from the risk/reward point of view between July 1 and July 7:
Long: INTC, F, PPG, DTE, AIG
Short: XEL, BLK, EOG, MSFT, EBAY
Stock Trading Strategist
Sunshine Profits - Effective Investments through Diligence and Care