In the last five trading days (October 28 – November 3) the broad stock market has extended its short-term downtrend, as it fell below 3,250 mark on Friday. But then on Tuesday, the market has retraced all of its decline ahead of the U.S. Presidential Election. The S&P 500 index set new record high of 3,588.11 on September 2. Then it fell below February 19 high of 3,393.52 again. In late September it set a local low of 3,209.45 before going back above 3,500 mark. On October 12 it reached 3,549.85. So far, it looks like a medium-term consolidation following 63.7% rally from March 23 corona virus low at 2,191.86.
The S&P 500 index has gained 0.80% between October 28 and November 3. In the same period of time our five long and five short stock picks have gained 0.24%. So stock picks were relatively slightly weaker than the broad stock market. Our long stock picks have gained 3.90%. However, short stock picks have resulted in a loss of 3.42%.
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.
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:
- November 3, 2020
Long Picks (October 28 open – November 3 close % change): D (+2.09%), FB (-4.84%), WYNN (+5.46%), BKR (+15.24%), ARE (+1.53%)
Short Picks (October 28 open – November 3 close % change): PXD (+1.27%), DRE (+8.66%), ITW (+7.09%), CMS (+0.72%), CMCSA (-0.63%)
Average long result: +3.90%, average short result: -3.42%
Total profit (average): +0.24%
- October 27, 2020
Long Picks (October 21 open – October 27 close % change): PPL (+1.96%), WDC (-3.40%), WYNN (-0.25%), XOM (-2.06%), LIN (-3.02%)
Short Picks (October 21 open – October 27 close % change): WMB (-1.12%), SHW (-0.23%), TROW (-2.61%), WEC (+1.63%), NVDA (-1.68%)
Average long result: -1.35%, average short result: +0.80%
Total profit (average): -0.27%
- October 20, 2020
Long Picks (October 14 open – October 20 close % change): CSCO (-1.63%), NI (+2.03%), CMG (+1.38%), XOM (-1.06%), SHW (-3.41%)
Short Picks (October 14 open – October 20 close % change): WMB (+1.33%), APD (-1.83%), JPM (+0.07%), NVDA (-4.51%), WEC (+1.47%)
Average long result: -0.54%, average short result: +0.69%
Total profit (average): +0.08%
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 4 – Tuesday, November 10 period.
We will assume the following: the stocks will be bought or sold short on the opening of today’s trading session (November 4) and sold or bought back on the closing of the next Tuesday’s trading session (November 10).
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 0.36% from the closing price on October 1. The strongest sector was Utilities XLU, as it gained 7.80%. The Materials XLB gained 5.71% and Industrials XLI gained 4.52%.
On the other hand, the weakest sector was Technology XLK, as it lost 4.08% in a month. The Consumer Discretionary XLY lost 1.14% and Real Estate XLRI lost 0.81%.
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 Utilities, 1 x Materials, 1 x Industrials
- sells: 1 x Technology, 1 x Consumer Discretionary, 1 x Real Estate
Contrarian approach (betting against the recent trend):
- buys: 1 x Technology, 1 x Consumer Discretionary
- sells: 1 x Utilities, 1 x Materials
Top 3 Buy Candidates
PEG Public Service Enterprise - Utilities
- Stock remains above month-long upward trend line - uptrend continuation play
- The resistance level of $62 and support level of $57
IFF Intl Flavors & Fragrances – Materials
- Short-term uptrend continuation play and a possible breakout about downward trend line
- The resistance level of $114
- The support level remains at $100
LMT Lockheed Martin Corp. – Industrials
- Stock broke above downward trend line, possible short-term uptrend continuation
- The resistance level is at $365-375
- The support level is at $350
Top 3 Sell Candidates
ADI Analog Devices, Inc. – Technology
- Stock trades within a bear flag pattern after breaking below upward trend line in late October
- The support level is at $110-114 - short-term downside profit target level
- The resistance level is at $122-126
APTV Aptiv Plc – Consumer Discretionary
- Possible bearish reversal within an upward trading channel
- The resistance level is at $102.50
- The support level is at $90.00-95.00 (short-term downside profit target level)
CBRE CBRE Group, Inc. – Real Estate
- Possible medium-term topping pattern
- The resistance level is at $54-55
- The nearest important support level is at $51
Top 2 Buy Candidates
CSCO Cisco Systems, Inc. – Technology
- Possible short-term uptrend continuation following breaking above downward trend line
- The resistance level is at $37.50 and support level is at $35.50
PHM PulteGroup, Inc. – Consumer Discretionary
- Stock may continue upwards following breaking above downward trend line
- The support level is at $40
- The resistance level is at $44-48
Top 2 Sell Candidates
WEC WEC Energy Group, Inc. - Utilities
- Possible medium-term topping pattern
- The support level is at $100 – short-term downside profit target level
FMC FMC Corp. - Materials
- Stock remains below downward trend line
- The support level is at $102 – short-term downside profit target level
In our opinion, the following stock trades are justified from the risk/reward point of view between November 4 and November 10:
Long: PEG, IFF, LMT, CSCO, PHM
Short: ADI, APTV, CBRE, WEC, FMC
Stock Trading Strategist
Sunshine Profits - Effective Investments through Diligence and Care