The broad stock market has extended its medium-term uptrend in the last five trading days (August 5 - August 11). The S&P 500 index got closer to its February 19 record high of 3,393.52 on Tuesday, August 11 as the daily high reached 3,381.01. But the index reversed lower and closed 0.8% below Monday's closing price yesterday.

More than four months ago on March 23, the market 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 erased more than a third of the broad stock market value. Since then stocks rallied 54.3%.

The S&P 500 index has gained just 0.49% between August 5 and August 11. In the same period of time our five long and five short stock picks have gained 1.62%. So stock picks were relatively stronger than the broad stock market. Our long stock picks have gained 1.65% and short stock picks have resulted in a gain of 1.59%.

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:

• August 11, 2020
  Long Picks (August 5 open - August 11 close % change): V (+2.18%), WBA (+2.45%), ECL (+3.13%), XOM (+1.86%), PSA (-1.38%)
  Short Picks (August 5 open - August 11 close % change): COP (+3.14%), CCI (-2.75%), SPGI (-0.95%), PYPL (-5.01%), K (-2.35%)
  
  Average long result: +1.65%, average short result: +1.59%
  Total profit (average): +1.62%
• August 4, 2020
  Long Picks (July 29 open - August 4 close % change): IFF (-2.27%), WBA (+0.24%), ED (-0.50%), XOM (-0.55%), WU (+7.13%)
  Short Picks (July 29 open - August 4 close % change): HES (+1.34%), XLNX (+2.30%), SPGI (-0.71%), APD (-3.33%), KO (-3.01%)
  
  Average long result: +0.81%, average short result: +0.68%
  Total profit (average): +0.75%
• July 28, 2020
  Long Picks (July 22 open - July 28 close % change): MLM (-5.87%), MCD (+1.57%), INTC (-19.84%), XOM (-1.36%), IRM (+2.58%)
  Short Picks (July 22 open - July 28 close % change): COG (-0.38%), WY (+6.86%), SPGI (-1.77%), APD (-0.40%), HD (+1.02%)
  
  Average long result: -4.59%, average short result: -1.07%
  Total profit (average): -2.83%

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, August 12 - Tuesday, August 18 period.

We will assume the following: the stocks will be bought or sold short on the opening of today's trading session (August 12) and sold or bought back on the closing of the next Tuesday's trading session (August 18).

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.

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 gained 5.76% from the closing price on July 9. The strongest sector was Industrials XLI, as it gained 15.24%. The Financials XLF gained 11.60% and Energy XLE gained 10.89%.

On the other hand, the weakest sector was Real Estate XLRE, as it gained 2.23% in a month. The Technology XLK gained 3.02% and Communication Services XLC gained 3.72%.

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 Industrials, 1 x Financials, 1 x Energy
• sells: 1 x Real Estate, 1 x Technology, 1 x Communication Services

Contrarian approach (betting against the recent trend):

• buys: 1 x Real Estate, 1 x Technology
• sells: 1 x Industrials, 1 x Financials

Trend-following approach

Top 3 Buy Candidates

BA Boeing Co. - Industrials

• Stock broke above two-month-long downward trend line
• Potential medium-term uptrend continuation
• The resistance level of $200-240

SCHW Charles Schwab Corp. - Financials

• Potential short-term uptrend continuation after breaking above downward trend line
• The resistance level of $36-38 (short-term upside profit target)
• The support level is at $33

CXO Concho Resources Inc. - Energy

• Stock remains above the previously broken downward trend line
• The resistance level and an initial upside profit target level is at $60

Top 3 Sell Candidates

CCI Crown Castle Intl Corp. - Real Estate

• The price broke below upward trend line, potential medium-term downward reversal pattern
• The resistance level is at $175
• The support level is at $150 (short-term downside profit target level)

AAPL Apple, Inc. - Technology

• Potential medium-term topping pattern
• Downward correction play
• The support level is at $400

CHTR Charter Communications Inc. - Communication Services

• Stock broke below its short-term upward trend line
• Potential medium-term topping pattern
• The support level is at $540-570 (initial downside profit target level)

Contrarian approach

Top 2 Buy Candidates

BXP Boston Properties Inc. - Real Estate

• Stock may resume medium-term uptrend after breaking above the downward trend line
• The resistance level of $95-100 - upside profit target level
• On the other hand, the support level is at $85

MSI Motorola Solutions Inc. - Technology

• Stock remains above its two-month-long upward trend line
• Upside profit target and the resistance level of $150

Top 2 Sell Candidates

ROP Roper Technologies, Inc. - Industrials

• Stock trades below its July upward trend line
• Potential medium-term downward reversal pattern
• The support level is at $410 - short-term downside profit target level

SPGI S&P Global Inc. - Financials

• Potential medium-term topping pattern
• Stock may extend its short-term downtrend and break below the close support level of $340
• The support level of $310 - downside profit target level

Conclusion

In our opinion, the following stock trades are justified from the risk/reward point of view between August 12 and August 18:

Long: BA, SCHW, CXO, BXP, MSI

Short: CCI, AAPL, CHTR, ROP, SPGI

Thank you.

Paul Rejczak
Stock Trading Strategist
Sunshine Profits - Effective Investments through Diligence and Care