Written by: Paul Eejczak
Which stocks could magnify S&P 500’s gains in case it rallies? Take a look at a part of our Stock Pick Update. We have included Utilities, Materials and Industrials stocks this time.
In the last five trading days (September 23 – September 29) the broad stock market has been retracing some of its recent decline. The S&P 500 index set new record high of 3,588.11 on September 2. But then the market fell below February 19 high of 3,393.52. On Thursday it set a local low of 3,209.45 before bouncing back above 3,300 mark for the second time. So far, the recent decline looks like a downward correction of a 63.7% rally from March 23 corona virus low at 2,191.86.
The S&P 500 index has gained 0.46% between September 23 and September 29. In the same period of time our five long and five short stock picks have lost 0.15%. So stock picks were relatively slightly weaker than the broad stock market. Our long stock picks have lost 1.43%, but short stock picks have resulted in a gain of 1.12%.
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 29, 2020
Long Picks (September 23 open – September 29 close % change): MLM (+4.25%), MAS (-0.88%), ROST (+0.03%), OXY (-10.24%), JNJ (-0.28%)
Short Picks (September 23 open – September 29 close % change): KMI (-3.26%), MCK (-1.92%), VZ (-0.99%), AMCR (-1.27%), IR (+1.82%)
Average long result: -1.43%, average short result: +1.12%
Total profit (average): -0.15%
- September 22, 2020
Long Picks (September 16 open – September 22 close % change): CF (-5.53%), ROST (-4.54%), SPG (-8.33%), XOM (-2.55%), CME (-1.50%)
Short Picks (September 16 open – September 22 close % change): MPC (-0.86%), JPM (-5.19%), ETR (+1.03%), SHW (-3.12%), MCD (-2.59%)
Average long result: -4.49%, average short result: +2.15%
Total profit (average): -1.17%
- 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%
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 30 – Tuesday, October 6 period.
We will assume the following: the stocks will be bought or sold short on the opening of today’s trading session (September 30) and sold or bought back on the closing of the next Tuesday’s trading session (October 6).
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.
The stock market sector analysis is available to our subscribers only.
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 Utilities, 1 x Materials, 1 x Industrials
- sells: 1 x Energy, 1 x Communication Services, 1 x Financials
Contrarian approach (betting against the recent trend):
- buys: 1 x Energy, 1 x Communication Services
- sells: 1 x Utilities, 1 x Materials
Top 3 Buy Candidates
SO Southern Co. - Utilities
- Stock trades within a short-term consolidation after breaking above local highs – possible uptrend continuation play
- The resistance level is at $55
- The support level is at $50-52
SEE Sealed Air Corp New – Materials
- Possible bull flag pattern and uptrend continuation
- The resistance level of $42
- The support level is at $35-36
MAS Masco Corp. - Industrials
- Possible bull flag pattern and uptrend continuation play
- The resistance level of $60
- The support level is at $54
Summing up, the above trend-following long stock picks are just a part of our whole Stock Pick Update. The Utilities, Materials and Industrials sectors were relatively the strongest in the last 30 days. 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.
We hope you enjoyed reading the above free analysis, and we encourage you to read today's Stock Pick Update - this analysis' full version. There, we include the stock market sector analysis for the past month and remaining long and short stock picks for the next week. There's no risk in subscribing right away, because there's a 30-day money back guarantee for all our products, so we encourage you to subscribe today.
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