In the last four trading days (September 2 - September 8) the broad stock market has retraced its month-long advance. The S&P 500 index set new record high of 3,588.11 on Wednesday, September 2. But then the market sold off by more than 250 points and it fell below February 19 high of 3,393.52 again. Five months 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%. Last week's decline is a downward correction so far.
The S&P 500 index has lost 5.98% between September 2 and September 8. In the same period of time our five long and five short stock picks have gained 1.78%. So stock picks were relatively much stronger than the broad stock market. Our long stock picks have lost 1.99% but short stock picks have resulted in a gain of 5.54%.
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 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%
- August 25, 2020
Long Picks (August 19 open - August 25 close % change): VFC (+3.87%), IBM (-0.15%), CAT (+1.91%), CVX (-1.34%), SCHW (+1.72%)
Short Picks (August 19 open - August 25 close % change): WMB (-2.11%), TROW (-1.15%), XEL (-1.84%), HD (-0.46%), AAPL (+7.62%)
Average long result: +1.20%, average short result: -0.41%
Total profit (average): +0.40%
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 9 - Tuesday, September 15 period.
We will assume the following: the stocks will be bought or sold short on the opening of today's trading session (September 9) and sold or bought back on the closing of the next Tuesday's trading session (September 15).
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 0.52% from the closing price on August 6. The strongest sector was Consumer Discretionary XLY, as it gained 3.62%. The Industrials XLI gained 3.40% and Materials XLB gained 2.86%.
On the other hand, the weakest sector was Energy XLE, as it lost 9.51% in a month. The Technology XLK lost 2.35% and Utilities XLU lost 2.22%.
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:
- buys: 1 x Consumer Discretionary, 1 x Industrials, 1 x Materials
- sells: 1 x Energy, 1 x Technology, 1 x Utilities
Contrarian approach (betting against the recent trend):
- buys: 1 x Energy, 1 x Technology
- sells: 1 x Consumer Discretionary, 1 x Industrials
Top 3 Buy Candidates
UAA Under Armour, Inc. - Consumer Discretionary
- Stock broke above month-long downward trend line
- The resistance level of $11.5-12.5
- The support level is at $9.5-10.0
EFX Equifax, Inc. - Industrials
- Stock remains within a medium-term consolidation
- Possible uptrend continuation
- The resistance level of $180
- The support level is at $160
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
Top 3 Sell Candidates
PSX Phillips 66 - Energy
- Stock broke below medium-term upward trend line
- The support level is at $57.5
- The resistance level of $65
GLW Corning, Inc. - Technology
- The stock broke below over month-long upward trend line
- The resistance level is at $33
- The support level is at $29-31 (short-term downside profit target level)
EIX Edison Intl, Inc. - Utilities
- Stock broke below its short-term upward trend line - bear flag pattern
- The resistance level is at $54-56
- The support level is at $48-50 (short-term downside profit target level)
Top 2 Buy Candidates
SLB Schlumberger Ltd. - Energy
- Stock trades within a medium-term consolidation
- Possible bounce off support level of $17-18
- The resistance level of $21
INTC Intel Corp. - Technology
- Stock got back to its over month-long upward trend line recently
- Possible bounce from support level
- Short-term upside profit target and the resistance level of $51-52
Top 2 Sell Candidates
MCD McDonalds Corp. - Consumer Discretionary
- Possible medium-term topping pattern
- Downward correction play
- The support level of $200 - short-term downside profit target level
RTX Raytheon Technologies Corp. - Industrials
- Possible bear flag pattern
- The support level is at $55.0-57.5 - short-term downside profit target level
In our opinion, the following stock trades are justified from the risk/reward point of view between September 9 and September 15:
Long: UAA, EFX, CF, SLB, INTC
Short: PSX, GLW, EIX, MCD, RTX
Stock Trading Strategist
Sunshine Profits - Effective Investments through Diligence and Care