The broad stock market has retraced some of its recent advance in the last five trading days (June 10 - June 16). More than two 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. Last week the S&P 500 retraced a bit of that surge. It fell below 3,000 mark before going back up on Monday and Tuesday this week.
The S&P 500 index has lost 2.76% since last Wednesday's open. In the same period of time our five long and five short stock picks have lost 2.01%. Stock picks were relatively slightly stronger than the broad stock market last week. Our long stock picks have lost 6.43% and short stock picks have resulted in a gain of 2.41%. 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 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%
- June 9, 2020
Long Picks (June 3 open - June 9 close % change): VMC (+5.25%), DISCK (+7.87%), HAS (+6.62%), HSY (-2.90%), MRK (+1.56%)
Short Picks (June 3 open - June 9 close % change): MNST (-3.00%), ABBV (+5.14%), EQIX (-0.07%), ECL (+5.14%), FB (+2.83%)
Average long result: +3.68%, average short result: -2.01%
Total profit (average): +0.84%
- June 2, 2020
Long Picks (May 27 open - June 2 close % change): OXY (+0.34%), DISCK (-1.60%), HAS (-0.39%), PPL (+8.41%), SYY (+1.14%)
Short Picks (May 27 open - June 2 close % change): AEP (+6.10%), CAG (+4.84%), ABBV (+0.55%), COP (-0.32%), FB (+1.59%)
Average long result: +1.58%, average short result: -2.55%
Total profit (average): -0.49%
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, June 17 - Tuesday, June 23 period.
We will assume the following: the stocks will be bought or sold short on the opening of today's trading session (June 17) and sold or bought back on the closing of the next Tuesday's trading session (June 23).
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 9.53% from the closing price on May 14. The strongest sector was Industrials XLI, as it gained 18.75%. The Real Estate XLRE gained 17.73% and Financials XLF gained 15.75%.
On the other hand, the weakest sector was Health Care XLV, as it gained 0.62% in a month. The Consumer Staples XLP gained 4.95% and Utilities XLU gained 6.77%.
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 Industrials, 1 x Real Estate, 1 x Financials
- sells: 1 x Health Care, 1 x Consumer Staples, 1 x Utilities
Contrarian approach (betting against the recent trend):
- buys: 1 x Health Care, 1 x Consumer Staples
- sells: 1 x Industrials, 1 x Real Estate
Top 3 Buy Candidates
BA Boeing Co. - Industrials
- Stock remains above month-long upward trend line
- Potential uptrend continuation
- The resistance level of $230-240 (upside profit target level)
DLR Digital Realty Trust, Inc. - Real Estate
- Stock broke above its upward trend line
- Upside profit target level of $152.50-155.00 (the resistance level)
- The support level remains at $130.00-132.50
WLTW Willis Towers Watson Public Ltd. Co. - Financials
- Potential breakout above downward trend line
- The resistance level of $200-210 (upside profit target)
- The support level remains at $175-180
Top 3 Sell Candidates
DHR Danaher Corp. - Health Care
- Potential medium-term topping pattern
- The resistance level is at $175-180
- Downward correction play
- The support level of $160-165 (short-term downside profit target level)
CLX Clorox Co. - Consumer Staples
- Potential topping pattern along the previous medium-term high
- Downward correction play
- The support level of $195 - downside profit target level
AEP American Elec Pwr Co., Inc. - Utilities
- Stock may extend its downtrend following breaking below upward trend line
- The support level of $75-80 - initial downside profit target level
Top 2 Buy Candidates
BMY Bristol Myers Squibb Co. - Health Care
- Short-term upward reversal pattern
- Stock may retrace some of its recent declines
- The resistance level of $58-62 - upside profit target level
HSY Hershey Foods Corp. - Consumer Staples
- The price bounced from its previous consolidation along $127.50 price level
- Potential medium-term bull flag pattern
- Initial upside profit target and the resistance level of $137.50-140.00
Top 2 Sell Candidates
MMM 3M Co. - Industrials
- Stock broke below its short-term upward trend line early in the month
- Potential topping pattern along the resistance level of $165-170
- The support level of $145-150 - initial downside profit target level
PLD ProLogis, Inc. - Real Estate
- Potential topping pattern along the resistance level of $98 - previous medium-term high
- Downward correction play
- The support level of $90 - short-term downside profit target level
In our opinion, the following stock trades are justified from the risk/reward point of view between June 17 and June 23:
Long: BA, DLR, WLTW, BMY, HSY
Short: DHR, CLX, AEP, MMM, PLD
Stock Trading Strategist
Sunshine Profits - Effective Investments through Diligence and Care