Stock Pick Update: October 14 – October 20, 2020

In the last five trading days (October 7 – October 13) the broad stock market has been advancing after last Tuesday’s quick sell-off following Donald Trump’s tweet about ending economic stimulus talks. The S&P 500 index set a new record high of 3,588.11 on September 2. But then the market fell below February 19 high of 3,393.52. Recently it set a local low of 3,209.45 before going back above 3,500 mark. So, the decline looks like a downward correction of a 63.7% rally from March 23 corona virus low at 2,191.86.

The S&P 500 index has gained 3.76% between October 7 and October 13. In the same period of time our five long and five short stock picks have gained 0.96%. So stock picks were relatively weaker than the rallying broad stock market. However, our long stock picks have gained 4.48% and short stock picks have resulted in a loss of 2.55%.

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:

October 13, 2020

Long Picks (October 7 open – October 13 close % change): CMS (+2.71%), RTX (+0.35%), EQIX (+4.46%), OKE (+8.35%), FB (+6.53%)
Short Picks (October 7 open – October 13 close % change): COP (+4.21%), TWTR (+2.02%), NVDA (+1.78%), AWK (+1.39%), FDX (+3.37%)

Average long result: +4.48%, average short result: -2.55%
Total profit (average): +0.96%

October 6, 2020

Long Picks (September 30 open – October 6 close % change): SO (+7.13%), SEE (+9.80%), MAS (-2.17%), EOG (-1.23%), FB (-1.27%)
Short Picks (September 30 open – October 6 close % change): CVX (+0.07%), VZ (0.00%), MS (+0.15%), PPL (+5.90%), NEM (-2.67%)

Average long result: +2.45%, average short result: -0.69%
Total profit (average): +0.88%

September 29, 2020
Long Picks (September 23 open – September 29 close % change): MLM (+4.25%), MAS (-0.88%), ROST (+0.03%), OXY (-10.24%), JNJ (-0.28%)
Short Picks (September 23 open – September 29 close % change): KMI (-3.26%), MCK (-1.92%), VZ (-0.99%), AMCR (-1.27%), IR (+1.82%)

Average long result: -1.43%, average short result: +1.12%
Total profit (average): -0.15%

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, October 14 – Tuesday, October 20 period.

We will assume the following: the stocks will be bought or sold short on the opening of today’s trading session (October 14) and sold or bought back on the closing of the next Tuesday’s trading session (October 20).

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 5.10% from the closing price on September 11. The strongest sector was Technology XLK, as it gained 8.83%. The Utilities XLU gained 8.56% and Consumer Discretionary XLY gained 6.61%.

On the other hand, the weakest sector was Energy XLE again, as it lost 5.32% in a month. The Materials XLB gained 1.58% and Financials XLF gained 1.77%.

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:

buys: 1 x Technology, 1 x Utilities, 1 x Consumer Discretionary
sells: 1 x Energy, 1 x Materials, 1 x Financials

Contrarian approach (betting against the recent trend):

buys: 1 x Energy, 1 x Materials
sells: 1 x Technology, 1 x Utilities

Trend-following approach

Top 3 Buy Candidates

CSCO Cisco Systems, Inc. - Technology

Stock remains above September’s downward trend line – possible uptrend continuation play
The resistance level is at $42
The support level is at $39

NI Nisource, Inc. – Utilities

Stock broke above its downward trend line – possible advance within a medium-term consolidation
The resistance level of $24-25
The support level is at $21.50

CMG Chipotle Mexican Grill Inc. – Consumer Discretionary

Stock remains above month-long upward trend line - possible uptrend continuation
Breakout above the resistance level of $1,300
The support level is at $1,200

Top 3 Sell Candidates

WMB Williams Cos., Inc. – Energy