Stock Pick Update: May 20 - May 26, 2020

The broad stock market has extended its short-term consolidation in the last five trading days (May 13 - May 19). Almost 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 2,900 mark. Recently the S&P 500 index has been trying to break above the resistance level of around 2,950.

The S&P 500 index has gained 1.99% since last Wednesday's open. In the same period of time our five long and five short stock picks have lost 0.17%. So stock picks were relatively weaker than the broad stock market. However, our long stock picks have gained 2.14% and they have outperformed the index. Short stock picks have resulted in a loss of 2.48%. 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:

May 19, 2020
Long Picks (May 13 open - May 19 close % change): SLB (+1.42%), CSCO (+2.74%), NWSA (+6.12%), CCI (-1.04%), CB (+1.46%)
Short Picks (May 13 open - May 19 close % change): AVB (+2.72%), C (+5.79%), AEP (-0.45%), COP (+4.02%), AAPL (+0.32%)

Average long result: +2.14%, average short result: -2.48%
Total profit (average): -0.17%
May 12, 2020
Long Picks (May 6 open - May 12 close % change): SLB (+5.17%), WYNN (-2.24%), MLM (-7.68%), MKC (+4.97%), GE (-3.22%)
Short Picks (May 6 open - May 12 close % change): SYY (-3.33%), CAT (-4.81%), XEL (-7.15%), COG (-6.68%), AMZN (+1.18%)

Average long result: -0.60%, average short result: +4.16%
Total profit (average): +1.78%
May 5, 2020
Long Picks (Apr 29 open - May 5 close % change): MPC (+4.50%), GILD (-5.75%), LIN (-3.19%), GE (-7.19%), HIG (-13.29%)
Short Picks (Apr 29 open - May 5 close % change): UPS (-3.53%), SPGI (-2.59%), SO (-6.06%), COG (-1.16%), AMGN (-1.06%)

Average long result: -4.98%, average short result: +2.88%
Total profit (average): -1.05%

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, May 20 - Tuesday, May 26 period.

We will assume the following: the stocks will be bought or sold short on the opening of today's trading session (May 20) and sold or bought back on the closing of the next Tuesday's trading session (May 26).

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 1.72% from the closing price on April 17. The strongest sector was Energy XLE once again, as it gained 11.46%. The Communication Services XLC gained 8.19% and Technology XLK gained 6.78%.

On the other hand, the weakest sector was Real Estate XLRE, as it lost 7.81% in a month. The Utilities XLU lost 7.36% and Consumer Staples XLP lost 5.44%.

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: