Stock Pick Update: November 25 – December 1, 2020

In the last five trading days (November 18 – November 24) the broad stock market has been fluctuating along 3,600 level. Yesterday it broke above short-term consolidation, as it got close to November 9 record high of 3,645.99 again. Is this a medium-term topping pattern or just some month-long consolidation before breaking to new record highs? The market is very hot right now.

The S&P 500 index has gained 0.65% between November 18 and November 24. In the same period of time our five long and five short stock picks have gained 6.57%. Stock picks were relatively much stronger than the broad stock market. Our long stock picks have gained a stunning 10.97% as they’ve outpaced the S&P 500 index on the long side. And short stock picks have resulted in a gain of 2.17%.

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.

Last week, we modified our stock-picking strategy. Its year-long performance record shows that non-contrarian stock picks were outperforming contrarian stock picks by a large margin. Non-contrarian stock picks have gained 8.8% since Nov 19, 2019, and contrarian stock picks have lost 10.6% in the same period of time. Take a look at our Stock Pick Update performance chart. We included non-contrarian along with contrarian stock picks and the S&P 500 index performance (Tuesday’s open - Wednesday’s close):

Therefore we stopped picking stocks on a contrarian basis. Our 5 long and 5 short stocks portfolio is based solely on the trend-following approach.

Our last week’s Stock Pick portfolio result:

November 24, 2020

Long Picks (November 18 open – November 24 close % change): WMB (+5.02%), PXD (+15.29%), WFC (+16.63%), C (+11.69%), ROK (+6.22%)
Short Picks (November 18 open – November 24 close % change): TXN (+2.32%), QCOM (-2.22%), DG (+1.94%), BBY (-4.67%), HRL (-8.24%)

Average long result: +10.97%, average short result: +2.17%
Total profit (average): +6.57%

The new Stock Pick Update performance chart:

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 25 – Tuesday, December 1 period.

We will assume the following: the stocks will be bought or sold short on the opening of today’s trading session (November 25) and sold or bought back on the closing of the next Tuesday’s trading session (December 1).

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 5.26% from the closing price on October 22. The strongest sector was Energy XLE, as it gained 32.03%. The Financials XLF gained 13.87% and Industrials XLI gained 10.90%.

On the other hand, the weakest sector was Utilities XLU, as it lost 0.54% in a month. The Health Care XLV gained 1.36% and Consumer Staples XLP gained 2.62%.

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 Utilities, 2 x Health Care, 1 x Consumer Staples

Buy Candidates

PXD Pioneer Natural Resources Co. - Energy