The broad stock market has slightly extended its uptrend in the last five trading days (May 20 – May 26). Two months ago 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 coronavirus 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 close to 3,000 mark. The S&P 500 index has broken slightly above the 3,000 mark yesterday. However, then it has retraced some of the intraday rally and closed at 2,991.77.
The S&P 500 index has gained 1.29% since last Wednesday’s open. In the same period of time our five long and five short stock picks have gained 1.85%. So stock picks were relatively stronger than the broad stock market last week. Our long stock picks have gained 3.71% and they have outperformed the index by far. Short stock picks have resulted in a loss of 0.01%. The overall results remain relatively better than the S&P 500 index over last months.
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:
- May 26, 2020
Long Picks (May 20 open – May 26 close % change): SLB (+5.32%), TWTR (+11.51%), CSCO (-0.47%), SPG (+1.13%), DTE (+1.06%)
Short Picks (May 20 open – May 26 close % change): AMT (+5.15%), SO (+0.87%), K (-0.34%), HES (+3.07%), NFLX (-8.69%)
Average long result: +3.71%, average short result: -0.01%
Total profit (average): +1.85% - May 19, 2020
Long Picks (May 13 open – May 19 close % change): SLB (+1.42%), CSCO (+2.74%), NWSA (+6.12%), CCI (-1.04%), CB (+1.46%)
Short Picks (May 13 open – May 19 close % change): AVB (+2.72%), C (+5.79%), AEP (-0.45%), COP (+4.02%), AAPL (+0.32%)
Average long result: +2.14%, average short result: -2.48%
Total profit (average): -0.17% - 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%
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 Wednesday, May 27 – Tuesday, June 2 period.
We will assume the following: the stocks will be bought or sold short on the opening of today’s trading session (May 27) and sold or bought back on the closing of the next Tuesday’s trading session (June 2).
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 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 Communication Services, 1 x Consumer Discretionary
- sells: 1 x Utilities, 1 x Consumer Staples, 1 x Health Care
Contrarian approach (betting against the recent trend):
- buys: 1 x Utilities, 1 x Consumer Staples
- sells: 1 x Energy, 1 x Communication Services
Trend-following approach
Top 3 Candidates
OXY Occidental Petroleum (NYSE:OXY). - Energy
- Stock trades along its month-long downward trend line
- A potential breakout above bear flag pattern
- The resistance level of $18
- Initial upside profit target level of $20-22
DISCK Discovery (NASDAQ:DISCA) - Communication Services
- The potential breakout above bull flag pattern
- Upside profit target level of $22-23
- The support level remains at $17-18
HAS Hasbro (NASDAQ:HAS) - Consumer Discretionary
- The market remains above its short-term upward trend following breaking above the resistance level of $70
- The resistance levels of $75 and $80 (upside profit target)
- The support level remains at $60
Summing up, the above trend-following long stock picks are just a part of our whole Stock Pick Update. The Energy, Communication Services and Consumer Discretionary 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.
Disclaimer
All essays, research and information found above represent analyses and opinions of Paul Rejczak and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Paul Rejczak and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Rejczak is not a Registered Securities Advisor. By reading Paul Rejczak’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.