Stock pick update: ROST trades within a possible medium-term bull flag pattern

Header: 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 Materials, Industrials and Consumer Discretionary stocks this time.

In the last five trading days (September 16 – September 22) the broad stock market extended its downtrend following two-week-long consolidation. 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 Monday it set a local low of 3,229.10 before bouncing back above 3,300 mark again. So far, the recent decline still 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 lost 2.80% between September 16 and September 22. In the same period of time our five long and five short stock picks have lost 1.17%. So stock picks were relatively stronger than the broad stock market. Our long stock picks have lost 4.49%, but short stock picks have resulted in a gain of 2.15%.

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 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%

• 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%

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 23 – Tuesday, September 29 period.

We will assume the following: the stocks will be bought or sold short on the opening of today's trading session (September 23) and sold or bought back on the closing of the next Tuesday's trading session (September 29).

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:

Trend-following approach:

• buys: 1 x Materials, 1 x Industrials, 1 x Consumer Discretionary

• sells: 1 x Energy, 1 x Health Care, 1 x Communication Services

Contrarian approach (betting against the recent trend):

• buys: 1 x Energy, 1 x Health Care

• sells: 1 x Materials, 1 x Industrials

Trend-following approach

Top 3 Buy Candidates

MLM Martin Marietta Materials - Materials

• Stock trades within a possible medium-term bull flag pattern – uptrend continuation play

• The resistance level is at $230, marked by previous highs

MAS Masco Corp. – Industrials

• Possible bull flag pattern and uptrend continuation

• The resistance level of $60

• The support level is at $54

ROST Ross Stores, Inc. - Consumer Discretionary

• Stock trades within a possible medium-term bull flag pattern

• The resistance level of $97.5 

• The support level is at $87.5

• Uptrend continuation play

Summing up, the above trend-following long stock picks are just a part of our whole Stock Pick Update. The Materials, Industrials and Consumer Discretionary 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.

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