The broad stock market has extended its short-term consolidation in the last five trading days (May 6 - May 12). On March 23, the S&P 500 index 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 have erased more than a third of the broad stock market value. Then we saw huge come-back rally, as the index got back above 2,900 mark. Recently it has been fluctuating following the mentioned rally. There is no clear short-term direction.
The S&P 500 index has lost 0.45% since last Wednesday's open. In the same period of time our five long and five short stock picks have gained 1.78%. So stock picks were relatively stronger than the broad stock market. Our long stock picks have lost 0.60% and short stock picks have resulted in a gain of 4.16%. 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 500 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:
- May 12, 2020
Long Picks (May 6 open - May 12 close % change): SLB (+5.17%), WYNN (-2.24%), MLM (-7.68%), MKC (+4.97%), GE (-3.22%)
Short Picks (May 6 open - May 12 close % change): SYY (-3.33%), CAT (-4.81%), XEL (-7.15%), COG (-6.68%), AMZN (+1.18%)
Average long result: -0.60%, average short result: +4.16%
Total profit (average): +1.78% - May 5, 2020
Long Picks (Apr 29 open - May 5 close % change): MPC (+4.50%), GILD (-5.75%), LIN (-3.19%), GE (-7.19%), HIG (-13.29%)
Short Picks (Apr 29 open - May 5 close % change): UPS (-3.53%), SPGI (-2.59%), SO (-6.06%), COG (-1.16%), AMGN (-1.06%)
Average long result: -4.98%, average short result: +2.88%
Total profit (average): -1.05% - Apr 28, 2020
Long Picks (Apr 22 open - Apr 28 close % change): SLB (+4.46%), EXPE (+14.94%), LH (+10.36%), COTY (-0.51%), PNC (+4.52%)
Short Picks (Apr 22 open - Apr 28 close % change): WMT (-1.54%), NDAQ (+2.50%), VZ (+0.73%), COG (-3.79%), EBAY (+2.44%)
Average long result: +5.17%, average short result: +0.18%
Total profit (average): +2.68%
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, May 13 - Tuesday, May 19 period.
We will assume the following: the stocks will be bought or sold short on the opening of today's trading session (May 13) and sold or bought back on the closing of the next Tuesday's trading session (May 19).
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.
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 Energy, 1 x Technology, 1 x Communication Services
- sells: 1 x Real Estate, 1 x Financials, 1 x Utilities
Contrarian approach (betting against the recent trend):
- buys: 1 x Real Estate, 1 x Financials
- sells: 1 x Energy, 1 x Technology
Trend-following approach
Top 3 Top Candidates
SLB Schlumberger (NYSE:SLB) - Energy
- Stock still above its month-long upward trend line
- The resistance level of $19
- Initial upside profit target level of $22-24
CSCO Cisco Systems (NASDAQ:CSCO) - Technology
- Stock broke above the resistance level of $43
- Potential uptrend resuming following breaking above bull flag pattern
- Upside profit target level of $45
NWSA News Corp (NASDAQ:NWSA). - Communication Services
- The market broke above medium-term downward trend line
- The resistance level of $12 (upside profit target level)
- The support level of $10.00-10.25
Summing up, the above trend-following long stock picks are just a part of our whole Stock Pick Update. The Energy, Technology and Communication Services sectors were relatively the strongest in the last 30 days. And they all have gained more 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.