The broad stock market has been trading within a short-term consolidation in the last five trading days (June 17 - June 23). 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 0.15% since last Wednesday's open. In the same period of time our five long and five short stock picks have gained 0.53%. Stock picks were relatively stronger than the broad stock market last week. Our long stock picks have lost 0.58% but short stock picks have resulted in a gain of 1.64%. 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 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%
- 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%
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 24 - Tuesday, June 30 period.
We will assume the following: the stocks will be bought or sold short on the opening of today's trading session (June 24) and sold or bought back on the closing of the next Tuesday's trading session (June 30).
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 6.18% from the closing price on May 21. The strongest sector was Real Estate XLRE, as it gained 9.75%. The Technology XLK gained 9.11% and Financials XLF gained 8.96%.
On the other hand, the weakest sector was Health Care XLV, as it gained just 1.42% in a month. The Energy XLE gained 2.75% and Utilities XLU gained 2.86%.
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 Real Estate, 1 x Technology, 1 x Financials
- sells: 1 x Health Care, 1 x Energy, 1 x Utilities
Contrarian approach (betting against the recent trend):
- buys: 1 x Health Care, 1 x Energy
- sells: 1 x Real Estate, 1 x Technology
Top 3 Buy Candidates
WY Weyerhauser Co. - Real Estate
- Stock continues to trade above month-long upward trend line
- Potential uptrend continuation
- The resistance level of $24-25 (upside profit target level)
CTSH Cognizant Technology Solutions Corp. - Technology
- Stock trades within a medium-term consolidation following April's advance
- Upside profit target level of $58-60 (the resistance level)
- The support level remains at $50-52
HIG Hartford Financial Services Group, Inc. - Financials
- Potential uptrend resuming after breaking above downward trend line
- The resistance level of $48 (short-term upside profit target)
- The nearest important support level remains at $38
Top 3 Sell Candidates
EW Edwards Lifesciences Corp. - Health Care
- Stock trades along the broken medium-term upward trend line
- The resistance level is at $72-76
- The support level of $62-66 (downside profit target level)
WMB Williams Cos., Inc. - Energy
- Potential breaking below short-term bear flag pattern
- Downward correction play
- The support level of $17.50 - short-term downside profit target level
ETR Entergy Corp Hldg Co. - Utilities
- Potential breakout below bear flag pattern
- Stock at the support level of $92.50
- The next support level at $82.50
Top 2 Buy Candidates
BSX Boston Scientific Corp. - Health Care
- The market remains within a medium-term consolidation
- Stock may resume its short-term uptrend after bouncing from support level of $34
- The resistance level of $38-39 - upside profit target level
COP ConocoPhillips - Energy
- Stock continues to trade above its medium-term upward trend line
- Upside profit target and the resistance level of $50
Top 2 Sell Candidates
CCI Crown Castle Intl Corp. - Real Estate
- Stock remains below a short-term downward trend line
- Potential topping pattern along the resistance level of $175
- The support level of $160 - initial downside profit target level
ADBE Adobe Systems, Inc. - Technology
- Potential topping pattern following recent rally
- Downward correction play
- The support level of $410 - short-term downside profit target level
In our opinion, the following stock trades are justified from the risk/reward point of view between June 24 and June 30:
Long: WY, CTSH, HIG, BSX, COP
Short: EW, WMB, ETR, CCI, ADBE
Stock Trading Strategist
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