The broad stock market has slightly extended its uptrend in the last five trading days (May 20 - May 26). 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 close to 3,000 mark. The S&P 500 index has broken slightly above 3,000 mark yesterday. However, then it has retraced some of the intraday rally and closed at 2,991.77.
The S&P 500 index has gained 1.29% since last Wednesday's open. In the same period of time our five long and five short stock picks have gained 1.85%. So stock picks were relatively stronger than the broad stock market last week. Our long stock picks have gained 3.71% and they have outperformed the index by far. Short stock picks have resulted in a loss of 0.01%. 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 26, 2020
Long Picks (May 20 open - May 26 close % change): SLB (+5.32%), TWTR (+11.51%), CSCO (-0.47%), SPG (+1.13%), DTE (+1.06%)
Short Picks (May 20 open - May 26 close % change): AMT (+5.15%), SO (+0.87%), K (-0.34%), HES (+3.07%), NFLX (-8.69%)
Average long result: +3.71%, average short result: -0.01%
Total profit (average): +1.85%
- 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%
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 27 - Tuesday, June 2 period.
We will assume the following: the stocks will be bought or sold short on the opening of today's trading session (May 27) and sold or bought back on the closing of the next Tuesday's trading session (June 2).
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 5.48% from the closing price on April 24. The strongest sector was Energy XLE once again, as it gained 14.41%. The Communication Services XLC gained 10.73% and Consumer Discretionary XLY gained 9.66%.
On the other hand, the weakest sector was Utilities XLU, as it lost 2.45% in a month. The Consumer Staples XLP lost 1.58% and Health Care XLV lost 0.85%.
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 Energy, 1 x Communication Services, 1 x Consumer Discretionary
- sells: 1 x Utilities, 1 x Consumer Staples, 1 x Health Care
Contrarian approach (betting against the recent trend):
- buys: 1 x Utilities, 1 x Consumer Staples
- sells: 1 x Energy, 1 x Communication Services
Top 3 Buy Candidates
OXY Occidental Petroleum Corp. - Energy
- Stock trades along its month-long downward trend line
- Potential breakout above bear flag pattern
- The resistance level of $18
- Initial upside profit target level of $20-22
DISCK Discovery, Inc. - Communication Services
- Potential breakout above bull flag pattern
- Upside profit target level of $22-23
- The support level remains at $17-18
HAS Hasbro, Inc. - Consumer Discretionary
- The market remains above its short-term upward trend following breaking above resistance level of $70
- The resistance levels of $75 and $80 (upside profit target)
- The support level remains at $60
Top 3 Sell Candidates
AEP American Elec Pwr Co. - Utilities
- Potential bear flag pattern
- Stock remains below the resistance level of $81
- The support level of $72 (downside profit target level)
CAG ConAgra Brands, Inc. - Consumer Staples
ABBV AbbVie, Inc. - Health Care
- Potential topping pattern along the resistance level of $94
- Stock broke below downward trend line
- The support level of $82 - downside profit target level
Top 2 Buy Candidates
PPL PPL Corp. - Utilities
- Stock at almost two-month-long downward trend line
- Positive divergence between the price and RSI
- The resistance level of $28.50 - upside profit target level
SYY Sysco Corp. - Consumer Staples
- The price has broken above the downward trend line
- Potential upside profit target and the resistance level of $60
Top 2 Sell Candidates
COP ConocoPhillips - Energy
- Potential short-term topping pattern along the resistance level of $45
- The support level of $37.50 - downside profit target level
FB Facebook, Inc. - Communication Services
- Potential topping pattern along the new record high
- Stock may retrace its recent advance - downward correction play
- The support level of $215-225 - downside profit target level
In our opinion, the following stock trades are justified from the risk/reward point of view between May 27 and June 2:
Long: OXY, DISCK, HAS, PPL, SYY
Short: AEP, CAG, ABBV, COP, FB
Stock Trading Strategist
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