In the last five trading days (December 2 – December 8) the broad stock market has further extended its long-term uptrend. The S&P 500 index reached new record high of 3,708.45 yesterday. The S&P 500 index has gained 1.33% between December 2 open and December 8 close. In the same period of time our five long and five short stock picks have lost 0.23%. Stock picks were relatively weaker than the broad stock market. Our long stock picks have gained 1.30%, but short stock picks have resulted in a loss of 1.76%. So long stock picks’ performance closely followed the benchmark.

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.

Our last week’s portfolio result:

Long Picks (December 2 open – December 8 close % change): WMB (+6.00%), COG (-4.53%), PGR (+3.21%), CB (+0.51%), MMM (+1.29%)
Short Picks (December 2 open – December 8 close % change): NEE (-0.62%), EXC (+0.49%), SPG (+7.62%), WELL (+3.69%), WMT (-2.36%)

Average long result: +1.30%, average short result: -1.76%
Total profit (average): -0.23%

Stock Pick Update performance chart since Nov 18, 2020:

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, December 9 – Tuesday, December 15 period.

We will assume the following: the stocks will be bought or sold short on the opening of today’s trading session (December 9) and sold or bought back on the closing of the next Tuesday’s trading session (December 15).

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 5.49% from the closing price on November 6. The strongest sector was Energy XLE again, as it gained 39.25%. The Financials XLF gained 15.31% and Industrials XLI gained 9.66%.

On the other hand, the weakest sector was Utilities XLU, as it lost 2.45% in a month. The Health Care XLV gained just 2.52% and Consumer Discretionary XLY gained 2.98%.

Based on the above, we decided to choose our stock picks for the next week. We will choose our 5 long and 5 short candidates using trend-following approach:

• buys: 2 x Energy, 2 x Financials, 1 x Industrials
• sells: 2 x Utilities, 2 x Health Care, 1 x Consumer Discretionary

Buy Candidates

XOM Exxon Mobil Corp. - Energy

• Stock broke above its short-term downward trend line, uptrend continuation play
• The support level is at $40 and resistance level is at $44 (short-term target profit level)

EOG EOG Resources, Inc. – Energy

• Possible short-term bull flag pattern, uptrend continuation play
• The support level is at $47 and resistance level is at $54

PGR Progressive Corp. – Financials

• Stock broke above its short-term downward trend line
• The support level is at $86 and resistance level $98-100

BK Bank of New York Mellon Corp. – Financials

• Possible uptrend continuation
• Stock trades close to the resistance level is at $40.75

MMM 3M Co. – Industrials

• Stock may resume its uptrend following short-term downward correction
• The support level is at $170
• The resistance level is at $180

Sell Candidates

LNT Alliant Energy Corp. – Utilities

• Stock trades within a potential bearish flag pattern
• The support level is at $51.50 – short-term downside target profit level

CNP CenterPoint Energy, Inc. – Utilities

• Short-term downtrend continuation play
• The resistance level is at $22.50
• The support level is at $21.00-21.50 – short-term downside target profit level

ABBV AbbVie Inc. – Health Care

• Possible medium-term topping pattern
• The resistance level is at $108
• The support level is at $100-104 – short-term target profit level

DHR Danaher Corp. - Health Care

• Possible bearish flag pattern – downtrend continuation play
• The support level is at $212.50 – short-term downside target profit level

APTV Aptiv Plc - Consumer Discretionary

• Possible medium-term topping pattern
• The support level is at $117.50 – short-term target profit level
• The next support level is at $112.50

Conclusion

In our opinion, the following stock trades are justified from the risk/reward point of view between December 9 and December 15:

Long: XOM, EOG, PGR, BK, MMM

Short: LNT, CNP, ABBV, DHR, APTV

Thank you.

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