The broad stock market has been fluctuating in the last five trading days (April 29 - May 5). Over a month ago, on March 23 the S&P 500 index 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 have erased more than a third of the broad stock market value. Then we saw huge come-back rally, as the index got back above 2,900 mark. Recently it has come back to around 2,800, before rising again. Is this a new medium-term uptrend or just upward correction before another leg down? We will likely see more short-term volatility.

The S&P 500 index has lost 1.71% since last Wednesday's open. In the same period of time our five long and five short stock picks have lost 1.05%. So stock picks were relatively stronger than the broad stock market. Our short stock picks have gained 2.88% and they were relatively stronger than the index on the short side. However, long stock picks have resulted in a loss of 4.98%. The overall results remain relatively better than the S&P 500 index over last weeks.

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:

• May 5, 2020
  Long Picks (Apr 29 open - May 5 close % change): MPC (+4.50%), GILD (-5.75%), LIN (-3.19%), GE (-7.19%), HIG (-13.29%)
  Short Picks (Apr 29 open - May 5 close % change): UPS (-3.53%), SPGI (-2.59%), SO (-6.06%), COG (-1.16%), AMGN (-1.06%)
  
  Average long result: -4.98%, average short result: +2.88%
  Total profit (average): -1.05%
• Apr 28, 2020
  Long Picks (Apr 22 open - Apr 28 close % change): SLB (+4.46%), EXPE (+14.94%), LH (+10.36%), COTY (-0.51%), PNC (+4.52%)
  Short Picks (Apr 22 open - Apr 28 close % change): WMT (-1.54%), NDAQ (+2.50%), VZ (+0.73%), COG (-3.79%), EBAY (+2.44%)
  
  Average long result: +5.17%, average short result: +0.18%
  Total profit (average): +2.68%
• Apr 21, 2020
  Long Picks (Apr 15 open - Apr 21 close % change): V (-4.84%), IP (-7.49%), SLB (+0.14%), LHX (-5.38%), FRT (-13.23%)
  Short Picks (Apr 15 open - Apr 21 close % change): BA (-1.92%), EQIX (-0.82%), NEE (-1.92%), HPQ (-6.97%), NEM (+1.25%)
  
  Average long result: -6.16%, average short result: +2.07%
  Total profit (average): -2.04%

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, May 6 - Tuesday, May 12 period.

We will assume the following: the stocks will be bought or sold short on the opening of today's trading session (May 6) and sold or bought back on the closing of the next Tuesday's trading session (May 12).

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 15.26% from the closing price on April 3. The strongest sector was Energy XLE, as it gained 24.56%. The Consumer Discretionary XLY gained 22.56% and Materials XLB gained 19.90%.

On the other hand, the weakest sector was Consumer Staples XLP, as it gained 4.17% in a month. The Industrials XLI gained 9.59% and Utilities XLU gained 9.60%.

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 Energy, 1 x Consumer Discretionary, 1 x Materials
• sells: 1 x Consumer Staples, 1 x Industrials, 1 x Utilities

Contrarian approach (betting against the recent trend):

• buys: 1 x Consumer Staples, 1 x Industrials
• sells: 1 x Energy, 1 x Consumer Discretionary

Trend-following approach

Top 3 Buy Candidates

SLB Schlumberger Ltd. - Energy

• Stock remains above its month-long upward trend line
• The resistance level of $19 (initial upside profit target level)

WYNN Wynn Resorts Ltd - Consumer Discretionary

• Stock broke above its March - April downward trend line
• It fluctuates along the resistance level of $80
• Potential uptrend resuming

MLM Martin Marietta Materials - Materials

• The market continues to trade above the support level of $175
• Potential breakout above the month-long downward trend line
• The resistance level of $210 (upside profit target level)

Top 3 Sell Candidates

SYY Sysco Corp. - Consumer Staples

• Breakdown below the upward trend line
• Stock bounced off resistance level at $60
• The support level of $45 (downside profit target level)

CAT Caterpillar, Inc. - Industrials

• Stock broke below its bearish flag pattern - potential downtrend resuming
• The support level of $100.0-102.5 - downside profit target level

XEL Xcel Energy - Utilities

• Stock broke below its month-long upward trend line
• The resistance level remains at $67
• The support level of $57 - downside profit target level

Contrarian approach

Top 2 Buy Candidates

MKC McCormick & Co., Inc. - Consumer Staples

• Potential bullish flag pattern
• The stock may continue its uptrend and reach previous highs
• Resistance level and profit target level of $167.5-172.5

GE General Electric Co. - Industrials

• Stock is at previous lows again
• Possible attempt at reversing upwards
• Potential upside profit target and the resistance level of $7.0-7.5

Top 2 Sell Candidates

COG Cabot Oil & Gas Corp. - Energy

• Potential medium-term topping pattern along the resistance level of $22
• Downward correction play
• Negative divergence between the price and RSI indicator
• The support level of $20 - downside profit target price

AMZN Amazon.com, Inc. - Consumer Discretionary

• Potential medium-term topping pattern
• Stock may retrace its recent advance - downward correction play
• Breakdown below upward trend line and rising wedge pattern
• The support level of $2,000-2,200 - downside profit target level

Conclusion

In our opinion, the following stock trades are justified from the risk/reward point of view between May 6 and May 12:

Long: SLB, WYNN, MLM, MKC, GE

Short: SYY, CAT, XEL, COG, AMZN

Thank you.

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

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Disclaimer

All essays, research and information found above represent analyses and opinions of Paul Rejczak and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Paul Rejczak and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Rejczak is not a Registered Securities Advisor. By reading Paul Rejczak's reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.