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Top S&P 500 Stocks to Watch

The S&P 500 has been running into strong resistance at the 2175 level, having tested the level three times over the past week and failing to close above it every time.

bg_us stocks earnings season 4
Source: Bloomberg

This does seem to indicate that a pullback may be ready for the index in a technical sense. If there is to be a pullback in the SPX then that 2120 level will be a key one to watch. 2120 is a strong level of support, and whether the index breaks through this or not will decide whether the index is seeing a major capitulation or not.

Market Internals

The market internals in the S&P 500 are beginning to roll over. Compounded with the strong technical resistance, the index is running into at the 2175 level certainly raises concerns for the near-term outlook. The percentage of companies trading above their 20-day moving average has dropped to 75.6% from 94.5% two weeks ago. While the percentage of companies trading above their 50-day moving average has dropped to 82.7% from 88.4% two weeks ago.

Top 15 and Bottom 15 Weekly Stock Performers

Linear Tech Corp’s (LLTC) stock rocketed up 28.9% yesterday after Analog Devices announced it planned to buy them out for US$14.8 billion. Among the biggest losers of the past week there are a number of energy-related names, such as Murphy, Diamond, Marathon, Cabot, and Kinder Morgan, who have all been hit by the big decline in oil prices.

NAME

5 Day

1 Month

YTD

NAME

5 Day

1 month

YTD

LINEAR TECH CORP

29.2

31.4

49.4

REYNOLDS AMERICA

-4.9

-1.0

10.1

CHESAPEAKE ENERG

18.9

25.0

18.9

DEERE & CO

-5.1

-7.2

5.1

EBAY INC

18.5

31.5

14.3

GILEAD SCIENCES

-5.1

-3.0

-19.1

UNITED RENTALS

17.8

14.3

10.3

SHERWIN-WILLIAMS

-5.2

0.3

13.5

HUMANA INC

13.4

-6.3

-2.2

KINDER MORGAN IN

-5.5

18.5

41.1

QUALCOMM INC

11.3

16.4

25.1

CABOT OIL & GAS

-5.5

-4.4

33.4

CINTAS CORP

11.3

15.1

19.0

TEGNA INC

-5.5

3.0

-8.8

MICRON TECH

11.0

23.1

3.6

WILLIAMS COS INC

-5.7

11.2

-1.9

BIOGEN INC

10.5

18.8

-6.3

CAMPBELL SOUP CO

-6.0

0.3

21.0

TEXAS INSTRUMENT

10.0

15.4

32.1

MARATHON OIL

-6.6

4.2

10.6

PACCAR INC

8.8

7.9

24.3

DIAMOND OFFSHORE

-6.8

-8.2

7.4

WYNN RESORTS LTD

8.7

1.9

51.4

MURPHY OIL CORP

-6.9

-1.8

32.8

ALLIANCE DATA

8.7

11.5

-15.8

FMC TECHNOLOGIES

-7.4

-5.1

-12.5

VERTEX PHARM

8.6

4.0

-24.5

TRANSOCEAN LTD

-7.9

0.0

-10.0

NORDSTROM INC

8.6

19.8

-10.3

SOUTHWEST AIR

-10.4

-4.0

-10.7

Risk-Adjusted Returns

I thought it would be interesting to look at the best risk-adjusted returns in the SPX as well. The well-known Sharpe ratio is the return of a stock in excess of the risk-free rate over the standard deviation of its returns (i.e. its volatility of returns). And I’ve also used the Sortino ratio as well, which is similar to the Sharpe ratio except that it penalises negative volatility (i.e. upside volatility is a good thing, especially when you own the stock). I’ve used 1-year Sharpe and year-to-date Sortino to give a bit of time period comparison. NVIDIA Corp, the graphics card and processor maker, really dominates both metrics, which is not totally surprising given the stock is up almost 196% in twelve months. Smaller gold miners, Newmont Mining and Iron Mountain, have also done well alongside the big gold price rally. But interestingly a number of utilities show up in the rankings as well, such as Waste Management Inc., American Water Works and Edison International.

NAME

YTD Sortino

1Y Sharpe

NAME

YTD Sortino

1Y Sharpe

Newmont Mining Corp

5.6

2.3

Tesoro Corp

-0.6

-0.3

Iron Mountain Inc

5.2

1.5

Delta Air Lines Inc

-0.6

-0.2

NVIDIA Corp

4.3

3.8

XL Group Ltd

-0.6

-0.3

Spectra Energy Corp

4.3

0.9

H&R Block Inc

-0.6

-0.5

AT&T Inc

4.2

1.8

Kroger Co/The

-0.6

-0.1

ONEOK Inc

3.9

0.7

Endo International PLC

-0.6

-0.9

Waste Management Inc

3.9

2.3

First Solar Inc

-0.6

0.4

American Water Works Co Inc

3.8

2.8

Tiffany & Co

-0.7

-1.0

Tyco International Plc

3.7

1.0

Perrigo Co PLC

-0.7

-1.1

Edison International

3.6

1.7

Signet Jewelers Ltd

-0.7

-0.5

Sysco Corp

3.6

2.1

CF Industries Holdings Inc

-0.7

-1.0

Southwestern Energy Co

3.6

0.1

Regeneron Pharmaceuticals Inc

-0.7

-0.4

Digital Realty Trust Inc

3.4

2.6

Valero Energy Corp

-0.7

-0.4

Realty Income Corp

3.4

2.2

AmerisourceBergen Corp

-0.7

-0.8

WEC Energy Group Inc

3.4

2.0

Alexion Pharmaceuticals Inc

-0.8

-0.7

Sector Returns

Energy has unsurprisingly been the biggest loser of the past week alongside the 5.8% drop in the WTI oil price. The high beta IT and healthcare sectors continue to perform well, buoyed by earnings results. And investors continue to slowly ease out of the safe haven sectors of telecoms and consumer staples.

Sector

5  Day Return

1 Month Return

YTD Return

IT

1.7

11.6

5.2

Utilities

0.4

2.2

20.6

Healthcare

1.1

9.3

3.7

Industrials

-0.6

9.8

9.4

Financials

0.2

10.1

-0.8

Consumer Staples

-1.2

3.6

8.6

Telecoms

-1.1

1.5

20.3

Materials

0.3

9.8

12.1

Consumer Disc.

0.6

9.0

4.3

Energy

-2.3

4.0

12.5

SPX Index

0.2

8.4

6.1

 

Factor Returns

 The size factor has been the biggest driver of outperformance of the past week, with small- and mid-cap companies noticeably outperforming other major factors.

Sector

5 Day Return

1 Month Return

YTD Return

Value

0.0

8.5

9.1

Growth

-0.2

8.8

4.7

Size

0.3

9.5

8.0

Momentum

-0.4

6.0

6.9

Quality

-0.1

9.1

4.7

Yield

0.2

7.4

13.4

Minimum Volatility

0.0

6.1

13.1

Small Caps

0.5

11.0

9.6

Mid Cap

0.7

10.6

8.7

Large Cap

-0.3

8.3

6.5

MSCI USA

-0.1

8.6

6.9

 

Short Positions

The Short Interest Ratio (SIR) measures how many days it would take to cover the outstanding short contracts in a stock based on average volume. Verisign has topped that list for a couple of months now, but has recently been dethroned by Western Union.

Stock Ticker

Name

Short Interest Ratio (Days to Cover)

WU US

WESTERN UNION CO

22.4

VRSN US

VERISIGN INC

20.9

MAR US

MARRIOTT INTERNATIONAL -CL A

19.4

GWW US

WW GRAINGER INC

17.1

HP US

HELMERICH & PAYNE

16.4

VAR US

VARIAN MEDICAL SYSTEMS INC

16.0

LRCX US

LAM RESEARCH CORP

15.2

SNI US

SCRIPPS NETWORKS INTER-CL A

13.2

TDC US

TERADATA CORP

13.0

DLR US

DIGITAL REALTY TRUST INC

12.9

 

Momentum Stock Picks

Note: These momentum stock recommendations are based off backtested results looking at a 3 day holding period (momentum signal shorter in S&P 500) with a 5% stop loss on every trade.

URI – (Buy)

United rentals is undergoing a re-rating as analysts try to gauge its potential earnings now that it has announced a major online service for all of its rental gear. URI broke through its November 2015 high, which is a good indicator that it could continue to go higher in the near term.

WYNN – (Buy)

Wynn Resorts has been on a steady trip to regain its pre-Brexit highs, and is set to report earnings after market on 28 July. There has also been noticeable insider buying of the stock recently, and the big 6.2% rally in the stock does seem to further hopes that it is set for a good earnings release.

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