Stock Pick Update: July 15 - July 21, 2020

The broad stock market has been advancing between July 1 and July 7. The S&P 500 index got closer to its early June medium-term local highs again. More than three months ago on March 23, the market 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.

The S&P 500 index has gained 1.27% between July 1 and July 7. In the same period of time our five long and five short stock picks have lost 1.43%. Stock picks were relatively weaker than the broad stock market. Our long stock picks have lost 1.29% and short stock picks have resulted in a loss of 1.57%. However, 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:

July 7, 2020
Long Picks (July 1 open - July 7 close % change): INTC (-2.67%), F (+0.33%), PPG (+2.17%), DTE (-0.35%), AIG (-5.93%)
Short Picks (July 1 open - July 7 close % change): XEL (+2.00%), BLK (+0.91%), EOG (-5.72%), MSFT (+2.52%), EBAY (+8.14%)

Average long result: -1.29%, average short result: -1.57%
Total profit (average): -1.43%
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%

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 15 - Tuesday, July 21 period.

We will assume the following: the stocks will be bought or sold short on the opening of today's trading session (July 15) and sold or bought back on the closing of the next Tuesday's trading session (July 21).

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 5.17% from the closing price on June 12. The strongest sector was Materials XLB, as it gained 8.61%. The Technology XLK gained 8.01% and Consumer Discretionary XLY gained 6.30%.

On the other hand, the weakest sector was Energy XLE, as it lost 6.93% in a month. The Real Estate XLRE lost 1.38% and Financials XLF gained just 0.07%.

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:

Trend-following approach:

buys: 1 x Materials, 1 x Technology, 1 x Consumer Discretionary
sells: 1 x Energy, 1 x Real Estate, 1 x Financials

Contrarian approach (betting against the recent trend):

buys: 1 x Energy, 1 x Real Estate
sells: 1 x Materials, 1 x Technology

Trend-following approach

Top 3 Buy Candidates

DOW Dow Holdings Inc. - Materials

Stock broke above over month-long downward trend line
Potential medium-term uptrend continuation
The resistance level of $46 (short-term upside profit target level)

INTC Intel Corp. - Technology

Stock remains above medium-term upward trend line
The resistance level and upside profit target level at $61-65
The support level is at $56

MCD McDonalds Corp. - Consumer Discretionary

Stock broke above downward trend line
The resistance level of $200 (short-term upside profit target)
The support level remains at $180

Top 3 Sell Candidates

COG Cabot Oil & Gas Corp. - Energy

Stock trades within a consolidation following its June sell-off
The market may resume the downtrend
The resistance level is at $18.50 and support level is at $15.50 (downside profit target level)

VNO Vornado Realty Trust - Real Estate