The corona virus and economic slowdown fears continued dominating headlines in the recent days. Our last week's Stock Pick Update has been released at the local high of stock market's dead-cat-bounce upward correction. Then the broad stock market resumed its downtrend, and on Monday it basically crashed following Friday's OPEC meeting negative oil news. 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, March 11 - Tuesday, March 17 period.
The S&P 500 index has lost 5.37% since last Wednesday's open. But our five long and five short stock picks were flat, as they lost 0.19% in the same period! So our stock picks have been relatively much stronger than the broad stock market for the third time in a row. Our short stock picks gained 11.96% and they outperformed the index on the short side again. Long stock picks lost 12.34%, but the whole ten-stock-picks portfolio performed incredibly well in time of a stock market's big sell-off.
If stocks were in a more prolonged downward correction, 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:
- Mar 10, 2020
Long Picks (Mar 4 open - Mar 10 close % change): VNO (-8.94%), WBA (+4.26%), PFE (-1.45%), NBL (-40.68%), JPM (-14.92%)
Short Picks (Mar 4 open - Mar 10 close % change): APA (-57.45%), PGR (-0.09%), ROK (-9.59%), EQIX (-2.51%), KR (+9.84%)
Average long result: -12.34%, average short result: 11.96%
Total profit (average): -0.19% - Mar 3, 2020
Long Picks (Feb 26 open - Mar 3 close % change): BKR (-11.98%), MMM (-2.89%), PFE (+0.18%), EXR (-0.96%), WEC (-2.91%)
Short Picks (Feb 26 open - Mar 3 close % change): MAA (-4.20%), EIX (-9.01%), CLX (-0.02%), OKE (-7.87%), CMI (-6.54%)
Average long result: -3.72%, average short result: +5.53%
Total profit (average): +0.91% - Feb 25, 2020
Long Picks (Feb 19 open - Feb 25 close % change): XEC (-7.66%), BSX (-5.67%), NUE (-5.31%), PEG (-2.69%), SPG (-2.59%)
Short Picks (Feb 19 open - Feb 25 close % change): AEE (-3.55%), CBRE (-8.58%), INTC (-10.03%), SLB (-13.40%), A (-7.97%)
Average long result: -4.78%, average short result: +8.71%
Total profit (average): +1.97%
The broad stock market has reached historically high levels recently. The breathtaking correction in December of 2018 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 3,300 mark. But the recent sell-off suggests that investors should prepare for volatility. If the market reverses higher, which stocks are going to beat the index? And if it continues lower 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 (March 11) and sold or bought back on the closing of the next Tuesday's trading session (March 17).
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 lost 14.01% since February 11. The strongest sector was Consumer Staples XLP, as it lost 6.17%. The Utilities XLU has lost 6.96% and Real Estate XLRE lost 7.17%.
On the other hand, the weakest sector was Energy XLE again, as it lost a stunning 33.81% in a month. The Financials XLF lost 22.10% and Industrials XLI lost 17.78%.
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 Consumer Staples, 1 x Utilities, 1 x Real Estate
- sells: 1 x Energy, 1 x Financials, 1 x Industrials
Contrarian approach (betting against the recent trend):
- buys: 1 x Energy, 1 x Financials
- sells: 1 x Consumer Staples, 1 x Utilities
Trend-following approach
Top 3 Buy Candidates
ADM Archer Daniels Midland Co. - Consumer Staples
- Potential falling wedge bottoming pattern
- Technically oversold - short-term upward correction play
- Positive divergence between the price and RSI indicator
- Resistance level of $39-40 (upside profit target level)
AES AES Corp. - Utilities
- Technically oversold - short-term upward correction play
- Positive divergence between the price and RSI indicator
- Potential resistance level at $16
SPG Simon Property Group, Inc. - Real Estate
- Potential upward reversal pattern - upward correction play
- The resistance levels of $120 and $130
Top 3 Sell Candidates
COG Cabot Oil & Gas Corp. - Energy
- Stock bounced off resistance level of $18-19
- The support level of $13-15 is a potential downside price target
CME CME Group Inc. - Financials
- Stock price bounced off resistance level of $220
- Negative divergence between the price and RSI indicator
NOC Northrop Grumman Corp. - Industrials
- Stock below month-long downward trend line
- The resistance level of $340-345
- Possible downward trend resuming following upward correction
Contrarian approach
Top 2 Buy Candidates
PSX Phillips 66 - Energy
- Potential bottoming pattern following Monday's sell-off
- Positive divergence between the price and RSI indicator
- Technical oversold conditions - upward correction play
- Resistance levels and profit target levels of $70 and $80
BAC Bank Of America Corp. - Financials
- Technical oversold conditions - upward correction play
- Potential upside profit target and the resistance level of $25-27
Top 2 Sell Candidates
CLX Clorox Co. - Consumer Staples
- Potential medium-term topping pattern
- Negative technical divergence between the price and RSI indicator
WEC WEC Energy Group, Inc. - Utilities
- The resistance level of $105, marked by local highs
- Potential medium-term topping pattern
- Negative technical divergence between the price and RSI indicator
Conclusion
In our opinion, the following stock trades are justified from the risk/reward point of view between March 11 and March 17:
Long: ADM, AES, SPG, PSX, BAC
Short: COG, CME, NOC, CLX, WEC
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.
