Last week (March 18 - March 24) has been a roller coaster ride for the broad stock market. The S&P 500 index dipped below the previous local low on Wednesday, before bouncing off from 2,300 level and getting back to 2,450. Then on Friday and Monday it sold off to the new medium-term low of 2,191.86. On Monday 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! Yesterday we saw huge come-back rally, as the S&P 500 index got back to 2,450 level again. Our last week's Stock Pick Update has been released just before the mentioned roller coaster ride. Was it a bottoming pattern before a rebound or just upward correction before another decline? We will certainly see more short-term volatility.
The S&P 500 index has gained 0.44% since last Wednesday's open. In the same period of time our five long and five short stock picks have gained 4.07%. So our stock picks were relatively stronger than the broad stock market, as they regained some of last week's lost ground. Short stock picks have outperformed lagging long stock picks, as they've gained 8.53%. Long stock picks lost 0.38%, so they basically followed the index in the last five trading days. The overall results remain relatively better than the S&P 500 index over last weeks.
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:
- Mar 24, 2020
Long Picks (Mar 18 open - Mar 24 close % change): LW (+9.21%), BDX (-15.16%), PEG (+0.30%), SLB (+10.00%), AXP (+5.04%)
Short Picks (Mar 18 open - Mar 24 close % change): COG (-12.05%), PGR (-5.79%), ITW (-7.68%), HSY (-7.78%), REGN (-9.33%)
Average long result: -0.38%, average short result: +8.53%
Total profit (average): +4.07% - Mar 17, 2020
Long Picks (Mar 11 open - Mar 17 close % change): ADM (-1.26%), AES (-21.68%), SPG (-45.84%), PSX (-23.54%), BAC (+3.77%)
Short Picks (Mar 11 open - Mar 17 close % change): COG (+14.72%), CME (-17.57%), NOC (-1.88%), CLX (+14.35%), WEC (+2.48%)
Average long result: -17.71%, average short result: -2.42%
Total profit (average): -10.07% - 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%
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 25 - Tuesday, March 31 period.
We will assume the following: the stocks will be bought or sold short on the opening of today's trading session (March 25) and sold or bought back on the closing of the next Tuesday's trading session (March 31).
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 lost 24.13% since February 25. The strongest sector was Technology XLK, as it lost "just" 18.15%. The Consumer Staples XLP lost 18.59% and Health Care XLV lost 19.38%.
On the other hand, the weakest sector was Energy XLE again, as it lost a stunning 45.77% in a month. The Financials XLF lost 32.78% and Real Estate XLRI lost 32.57%.
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 Technology, 1 x Consumer Staples, 1 x Health Care
- sells: 1 x Energy, 1 x Financials, 1 x Real Estate
Contrarian approach (betting against the recent trend):
- buys: 1 x Energy, 1 x Financials
- sells: 1 x Technology, 1 x Consumer Staples
Trend-following approach
Top 3 Buy Candidates
INTC Intel Corp. - Technology
- Breakout above downward trend line
- Resistance level of $60 (upside profit target level)
STZ Constellation Brands, Inc. - Consumer Staples
- Potential bottoming pattern
- Technically oversold
- The resistance level at $145-155 (upside profit target level)
PFE Pfizer, Inc. - Health Care
- Potential upward reversal pattern - upward correction play
- The resistance level of $32.50
- Positive divergence between the price and RSI indicator
Top 3 Sell Candidates
WMB Williams Cos., Inc. - Energy
- Stock at the resistance level of $13
- Week-long upward correction - potential downward reversal here
- Indicators confirming medium-term downtrend
PGR Progressive Corp. - Financials
- Stock price remains below the resistance level of $70-71
- Likely reversal following the recent upward correction
EQIX Equinix, Inc. - Real Estate
- Stock below downward trend line
- The RSI indicator confirms the downtrend
- The support level of $500 - downside profit target level
Contrarian approach
Top 2 Buy Candidates
SLB Schlumberger Ltd. - Energy
- Potential bottoming pattern
- Technical oversold conditions - upward correction play
- Resistance levels and profit target levels of $19-24
WFC Wells Fargo & Co. - Financials
- Falling wedge pattern - potential upward reversal
- Technical oversold conditions - upward correction play
- Potential upside profit target and the resistance level of $32-36
Top 2 Sell Candidates
ADBE Adobe Systems, Inc. - Technology
- Stock price remains below downward trend line
- Bear flag pattern
- The resistance level of around $325
CHD Church & Dwight Co, Inc. - Consumer Staples
- The resistance level of $69
- Stock remains below downward trend line
- 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 25 and March 31:
Long: INTC, STZ, PFE, SLB, WFC
Short: WMB, PGR, EQIX, ADBE, CHD
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.
