Stock Pick Update: November 18 – November 24, 2020

In the last five trading days (November 11 – November 17) the broad stock market has fluctuated following November 9 run-up to new record high of 3,645.99 after news about Pfizer’s coronavirus vaccine and the U.S. Presidential Election outcome. The S&P 500 index got closer to the high on Monday and it currently trades along 3,600 mark.

The S&P 500 index has gained 1.30% between November 11 and November 17. In the same period of time our five long and five short stock picks have gained 0.51%. Stock picks were relatively weaker than the broad stock market. However, our long stock picks have gained 3.55% as they’ve outpaced the S&P 500 index on the long side. Short stock picks have resulted in a loss of 2.52%.

There are risks that couldn’t be avoided in trading. Hence the need for proper money management and a relatively diversified stock portfolio. This is especially important if trading on a time basis – without using stop-loss/ profit target levels. We are just buying or selling stocks at open on Wednesday and selling or buying them back at close on the next Tuesday.

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.

Starting this week, we will modify our stock-picking strategy. Its year-long performance record shows that non-contrarian (pro-market) stock picks were outperforming contrarian (against-market) stock picks by a large margin. Non-contrarian stock picks gained 8.8% since Nov 19, 2019, and contrarian stock picks lost 10.6% in the same period of time. Therefore we will stop picking stocks on a contrarian basis. Our 5 long and 5 short stocks portfolio will be based solely on the trend-following approach.

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, November 18 – Tuesday, November 24 period.

We will assume the following: the stocks will be bought or sold short on the opening of today’s trading session (November 18) and sold or bought back on the closing of the next Tuesday’s trading session (November 24).

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 3.63% from the closing price on October 15. The strongest sector was Energy XLE, as it gained 18.10%. The Financials XLF gained 10.49% and Industrials XLI gained 8.16%.

On the other hand, the weakest sector was Technology XLK, as it gained just 0.16% in a month. The Consumer Discretionary XLY gained 0.37% and Consumer Staples XLP gained 2.28%.

Based on the above, we decided to choose our stock picks for the next week. We will choose our 5 long and 5 short candidates using trend-following approach:

buys: 2 x Energy, 2 x Financials, 1 x Industrials
sells: 2 x Technology, 2 x Consumer Discretionary, 1 x Consumer Staples

Buy Candidates

WMB Williams Cos., Inc. - Energy

Stock broke above medium-term downward trend line - uptrend continuation play
The resistance level of $21.50 and support level of $20.00

PXD Pioneer Natural Resources Co. – Energy

Short-term uptrend continuation play
The resistance level of $98-108
The support level is at $84-90

WFC Wells Fargo & Co. – Financials

Stock broke above downward trend line, uptrend continuation play
The resistance level is at $25.50
The support level is at $23.50

C Citigroup, Inc. – Financials

Possible uptrend continuation following breaking above short-term downward trend line
The resistance level is at $52-57 and support level is at $47

ROK Rockwell Automation – Industrials

Stock may advance within an upward trading channel
The support level is at $230
The resistance level is at $255-265

Sell Candidates

TXN Texas Instruments, Inc. – Technology

Stock breaks below month-long upward trend line
Downward correction play
The support level is at $140.00-147.50 - short-term downside profit target level

QCOM QUALCOMM Inc. – Technology

Possible medium-term downward reversal pattern
The resistance level is at $150
The support level is at $130 - downside profit target level

DG Dollar General Corp. – Consumer Discretionary

Possible short-term downtrend continuation following breaking below upward trend line
The resistance level is at $215.0
The support level is at $200.0-207.5

BBY Best Buy Co, Inc. - Consumer Discretionary