In the last five trading days (September 30 - October 6) the broad stock market has been fluctuating within a short-term consolidation. The S&P 500 index set 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 bouncing back above 3,300 mark. So far, 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 0.59% between September 30 and October 6. In the same period of time our five long and five short stock picks have gained 0.88%. So stock picks were relatively stronger than the broad stock market. Our long stock picks have gained 2.45%, but short stock picks have resulted in a loss of 0.69%.
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 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%
- September 22, 2020
Long Picks (September 16 open - September 22 close % change): CF (-5.53%), ROST (-4.54%), SPG (-8.33%), XOM (-2.55%), CME (-1.50%)
Short Picks (September 16 open - September 22 close % change): MPC (-0.86%), JPM (-5.19%), ETR (+1.03%), SHW (-3.12%), MCD (-2.59%)
Average long result: -4.49%, average short result: +2.15%
Total profit (average): -1.17%
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 7 - Tuesday, October 13 period.
We will assume the following: the stocks will be bought or sold short on the opening of today's trading session (October 7) and sold or bought back on the closing of the next Tuesday's trading session (October 13).
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 2.74% from the closing price on September 3. The strongest sector was Utilities XLU, as it gained 4.68%. The Industrials XLI gained 0.69% and Real Estate XLRE gained 0.41%.
On the other hand, the weakest sector was Energy XLE again, as it lost 13.61% in a month. The Communication Services XLC lost 6.46% and Technology XLK lost 3.24%.
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 Industrials, 1 x Real Estate
- sells: 1 x Energy, 1 x Communication Services, 1 x Technology
Contrarian approach (betting against the recent trend):
- buys: 1 x Energy, 1 x Communication Services
- sells: 1 x Utilities, 1 x Industrials
Top 3 Buy Candidates
CMS CMS Energy Corp. - Utilities
- Stock broke above its previous local highs and downward trend line - possible uptrend continuation play
- The resistance level is at $64
- The support level is at $60
RTX Raytheon Technologies Corp. - Industrials
- Stock broke above its short-term downward trend line - possible advance within a medium-term consolidation
- The resistance level of $64-65
- The support level is at $56
EQIX Equinix, Inc. - Real Estate
- Stock remains above upward trend line - possible uptrend continuation
- The resistance level of $800
- The support level is at $740
Top 3 Sell Candidates
COP ConocoPhillips - Energy
- Stock trades below over month-long downward trend line
- The support level is at $30-32, short-term downside profit target level
- The resistance level is at $36
TWTR Twitter, Inc. - Communication Services
- Possible medium-term topping pattern following breaking below short-term upward trend line
- The resistance level is at $48
- The support level is at $38 (short-term downside profit target level)
NVDA NVIDIA Corp. - Technology
- Possible short-term topping pattern
- The resistance level is at $580-600
- The support level is at $500 (short-term downside profit target level)
Top 2 Buy Candidates
OKE Oneok, Inc. - Energy
- Possible uptrend continuation following breaking above downward trend line
- The resistance level of $32, support level at $24
FB Facebook, Inc. - Communication Services
- Possible uptrend resuming following breaking above month-long downward trend line and a short-term bull flag pattern
- Stock remains above the support level of $250
- Short-term upside profit target and the resistance level of $280-300
Top 2 Sell Candidates
AWK American Water Works Co. Inc. - Utilities
- Possible medium-term topping pattern
- The support level is at $137.5-140.0 - short-term downside profit target level
FDX FedEx Corp. - Industrials
- Stock trades within a possible medium-term rising wedge - topping pattern
- The support level of $230 - short-term downside profit target level
In our opinion, the following stock trades are justified from the risk/reward point of view between October 7 and October 13:
Long: CMS, RTX, EQIX, OKE, FB
Short: COP, TWTR, NVDA, AWK, FDX
Stock Trading Strategist
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