Stock Pick Update: September 16 - September 22, 2020

In the last five trading days (September 9 - September 15) the broad stock market traded within a consolidation following the recent sell-off. The S&P 500 index set new record high of 3,588.11 on Wednesday, September 2. But then the market sold off by almost 280 points and it fell below February 19 high of 3,393.52 again. Half a year ago on March 23, S&P 500 sold off to new medium-term low of 2,191.86. It was a stunning 35.4% below February 19 record high of 3,393.52. The corona virus and economic slowdown fears erased more than a third of the broad stock market value. But since then stocks rallied 63.7%. The recent decline looks like a downward correction so far.

The S&P 500 index has gained 0.93% between September 9 and September 15. In the same period of time our five long and five short stock picks have lost 0.15%. So stock picks were relatively weaker than the broad stock market. Our long stock picks have gained 1.07%, but short stock picks have resulted in a loss of 1.37%.

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:

September 15, 2020
Long Picks (September 9 open - September 15 close % change): UAA (+7.37%), EFX (-3.77%), CF (+2.30%), SLB (-1.52%), INTC (+0.95%)
Short Picks (September 9 open - September 15 close % change): PSX (+0.02%), GLW (+0.98%), EIX (-0.37%), MCD (+3.43%), RTX (+2.79%)

Average long result: +1.07%, average short result: -1.37%
Total profit (average): -0.15%
September 8, 2020
Long Picks (September 2 open - September 8 close % change): CSCO (-4.85%), DIS (+0.43%), MAR (+0.68%), WEC (+2.00%), PXD (-8.20%)
Short Picks (September 2 open - September 8 close % change): SO (+2.09%), PSX (-1.08%), PEAK (-0.47%), NVDA (-18.98%), FB (-9.27%)

Average long result: -1.99%, average short result: +5.54%
Total profit (average): +1.78%
September 1, 2020
Long Picks (August 26 open - September 1 close % change): FIS (+4.53%), MAR (+4.82%), DISH (+1.59%), PXD (-2.85%), WEC (+2.02%)
Short Picks (August 26 open - September 1 close % change): PSX (-4.28%), D (-0.35%), ANTM (-1.31%), AAPL (+6.34%), HD (-0.62%)

Average long result: +2.02%, average short result: +0.04%
Total profit (average): +1.03%

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, September 16 - Tuesday, September 22 period.

We will assume the following: the stocks will be bought or sold short on the opening of today's trading session (September 16) and sold or bought back on the closing of the next Tuesday's trading session (September 22).

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 0.83% from the closing price on August 13. The strongest sector was Materials XLB, as it gained 6.04%. The Consumer Discretionary XLY gained 3.64% and Real Estate XLRE gained 3.10%.

On the other hand, the weakest sector was Energy XLE, as it lost 13.76% in a month. The Financials XLF lost 1.51% and Utilities XLU lost 1.22%.

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 Materials, 1 x Consumer Discretionary, 1 x Real Estate
sells: 1 x Energy, 1 x Financials, 1 x Utilities

Contrarian approach (betting against the recent trend):

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

Trend-following approach

Top 3 Buy Candidates

CF CF Industries Holdings, Inc. - Materials

Stock trades within a bull flag pattern - uptrend continuation play
The resistance level and a short-term upside profit target level is at $35-36, marked by previous high

ROST Ross Stores, Inc. - Consumer Discretionary