The broad stock market has extended its rebound last week (April 1-7). On March 23, it sold off to the new medium-term low of 2,191.86. It was a stunning 35.4% below Feb. 19 record high of 3,393.52. The corona virus and economic slowdown fears have erased more than a third of the broad stock market value. Then we saw huge come-back rally, as the S&P 500 got back to local highs above 2,700 mark. Is this a new uptrend or just upward correction before another leg down? We will certainly see more short-term volatility.
The S&P 500 index has gained 6.46% since last Wednesday’s open. In the same period of time our five long and five short stock picks have gained 0.59%. So our stock picks were relatively weaker than the broad stock market. However, long stock picks have outperformed the index as they’ve gained 10.03%. But short stock picks have resulted in a loss of 8.84%. The overall results remain relatively better than the S&P 500 index over last weeks.
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 $100,000, 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:
April 7, 2020
Long Picks (Apr 1 open – Apr 7 close % change): PFE (NYSE:PFE) (+5.29%), KR (+5.15%), ANSS (+7.40%), SLB (+25.82%), WFC (+6.48%)
Short Picks (Apr 1 open – Apr 7 close % change): COG (+8.89%), MCO (+13.26%), MMM (+9.55%), IDXX (+5.86%), EL (+6.63%)
Average long result: +10.03%, average short result: -8.84%
Total profit (average): +0.59%
March 31, 2020
Long Picks (Mar 25 open – Mar 31 close % change): INTC (+3.13%), STZ (+14.92%), PFE (+10.64%), SLB (-10.01%), WFC (-1.03%)
Short Picks (Mar 25 open – Mar 31 close % change): WMB (+8.10%), PGR (+7.03%), EQIX (+16.57%), ADBE (+3.32%), CHD (+3.60%)
Average long result: +3.53%, average short result: -7.73%
Total profit (average): -2.10%
March 24, 2020
Long Picks (Mar 18 open – Mar 24 close % change): LW (+9.21%), BDX (-15.16%), PEG (+0.30%), SLB (+10.00%), AXP (+5.04%)
Short Picks (Mar 18 open – Mar 24 close % change): COG (-12.05%), PGR (-5.79%), ITW (-7.68%), HSY (-7.78%), REGN (-9.33%)
Average long result: -0.38%, average short result: +8.53%
Total profit (average): +4.07%
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, April 8 – Tuesday, April 14 period.
We will assume the following: the stocks will be bought or sold short on the opening of today’s trading session (April 8) and sold or bought back on the closing of the next Tuesday’s trading session (April 14).
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 11 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 ETFs.
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 Health Care, 1 x Consumer Staples, 1 x Technology
sells: 1 x Energy, 1 x Real Estate, 1 x Financials
Contrarian approach (betting against the recent trend):
buys: 1 x Energy, 1 x Real Estate
sells: 1 x Health Care, 1 x Consumer Staples
Trend-following approach
Top 3 Buy Candidates
WAT Waters Corp (NYSE:WAT). - Health Care
- Breakout above month-long downward trend line
- Resistance level of $210-215 (upside profit target level)
WBA Walgreens Boots Alliance (NASDAQ:WBA), Inc. – Consumer Staples
Price bounced off from new medium-term low
- Closer to breaking above the downward trend line
- The resistance level at $50 (upside profit target level)
AMD Advanced Micro Devices (NASDAQ:AMD), Inc. – Technology
Breakout above the downward trend line
- The resistance level of $50-54
- Rising RSI indicator confirming short-term uptrend
Summing up, the above trend-following long stock picks are just a part of our whole Stock Pick Update. The Health Care, Consumer Staples and Technology sectors were relatively the strongest in the last 30 days again. And they have lost less than the S&P 500 index in the same period. So that part of our ten long and short stock picks is meant to outperform in the coming days if the broad stock market acts similarly as it did before.