Stocks lost ground as coronavirus and economic slowdown fears dominated headlines

Stocks lost ground, as corona virus and economic slowdown fears dominated headlines in the recent days. The S&P 500 index has lost a stunning 7.5% since last Wednesday’s open. But our five long and five short stock picks were profitable, as they gained almost 2% in the same period! Let’s check which stock 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, February 26 – Tuesday, March 3 period.

The Stock Pick Update for the Wednesday, February 19 - Tuesday, February 25, 2020 period resulted in a gain of 1.97%. The S&P 500 index has lost 7.46%, so our stock picks have been relatively much stronger than the broad stock market. Our short stock picks gained 8.71% and they out performed the index on the short side. Long stock picks lost 4.78%, but the whole ten-stock-picks portfolio performed incredibly well in time of a stock market breakdown.

If stocks were in a more prolonged downward correction, 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:

Feb 25, 2020
Long Picks (Feb 19 open – Feb 25 close % change): XEC (-7.66%), BSX (-5.67%), NUE (-5.31%), PEG (-2.69%), SPG (-2.59%)
Short Picks (Feb 19 open – Feb 25 close %change): AEE (-3.55%), CBRE (-8.58%), INTC (-10.03%), SLB (-13.40%), A (-7.97%)

Average long result: -4.78%, average short result: +8.71%
Total profit (average): +1.97%

Feb 18, 2020
Long Picks (Feb 11 open – Feb 18 close % change): PSX (-2.96%), DD (+1.00%), PNC (-2.96%), NRG (+2.83%), EXR (+3.66%)
Short Picks (Feb 11 open – Feb 18 close %change): NEE (+3.91%), PLD (+1.76%), AMD (+4.33%), PXD (-2.28%), DOW (-3.92%)

Average long result: +0.32%, average short result: -0.76%
Total profit (average): -0.22%

Feb 11, 2020
Long Picks (Feb 5 open – Feb 11 close % change): PSX (-0.11%), MS (+1.68%), DD (-1.09%), PEG (-1.98%), NTAP (+3.59%)
Short Picks (Feb 5 open – Feb 11 close %change): ETR (+1.93%), NOW (-2.72%), PEAK (+0.69%), HAL (-2.07%), STT (+0.91%)

Average long result: +0.42%, average short result: +0.29%
Total profit (average): +0.36%

The broad stock market has reached historically high levels recently. The breathtaking correction in December of 2018 was followed by the record-breaking comeback rally. The late October – early November breakout led to another leg higher, as the S&P 500 index broke above 3,300 mark. But the recent sell-off suggests that investors should prepare for volatility. If the market reverses higher, which stocks are going to beat the index? And if it continues lower from here, which stocks are about to outperform on the short side?

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.

We will assume the following: the stocks will be bought or sold short on the opening of today’s trading session (February 26) and sold or bought back on the closing of the next Tuesday’s trading session (March 3).

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.

Let’s start with our first charts (charts courtesy of www.stockcharts.com).

There’s S&P 500’s 30-minute chart along with market sector indicators for the past month.  The S&P 500 index has lost 5.95% since January 24. The strongest sector was Real Estate XLRE, as it gained 0.66%. The Utilities XLU has lost just 0.18% and Consumer Staples XLP lost 3.12%.

On the other hand, the weakest sector was Energy XLE again, as it lost 13.80%. The Industrials XLIlost 7.22% and Health Care XLV lost 6.78%.

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 a contrarian approach, and top 2 long and top 2 short candidates using trend-following approach:

Contrarian approach (betting against the recent trend):

buys: 1 x Energy, 1 x Industrials, 1 x Health Care

sells: 1 x Real Estate, 1 x Utilities, 1 x Consumer Staples

Trend-following approach:

buys: 1 x Real Estate,1 x Utilities

sells: 1 x Energy, 1 x Industrials

 

Contrarian approach

Top 3 Buy Candidates

BKR Baker Hughes Company - Energy

Technically oversold – short-term upward correction play

Potential resistance level of $20 (upside profit target level)

 

MMM 3M Co. - Industrials

Technically oversold – short-term upward correction play

Positive divergence between the price and RSI indicator

Potential resistance level of $154-156 (upside profit target level)

 

PFE Pfizer, Inc. - Health Care

Technically oversold – short-termupward correction play

The price is at the support level of $33.50-34.00, marked by previous lows

Summing up, the above contrarian long stock picks are just a part of our whole Stock Pick Update. The Energy, Industrials and Health Care sectors were the weakestsince January 24. 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 in a different way than before.

 

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