Top S&P 500 Stocks to Watch

As selling continues to come into the S&P 500, 2120 is the level to watch.

bg_us stocks new 2
Source: Bloomberg

While a pullback is to be expected after such a solid month and a half rally, a drop below 2050 would likely portend that this is more than a digestion of recent gains and could compound into a far more serious selloff like we saw in August last year.

Angus_chart_030816_small
Click to enlarge

Market Internals

The market internals in the S&P 500 are starting to point to a decent pullback. The way the internals are moving, it looks very likely that we will see a pullback to at least 2100, if not lower. 45% of companies are still trading above their 20-day moving average, but on prior pullbacks this usually continues to fall to at least 20%.

Top 15 Winners and Losers

Garmin’s pivot away from exclusively GPS devices and into wearable technology is proving very successful so far, and after its 2Q EPS topped analyst expectations by US$0.20 the stock has soared. Stericycle, the hazardous waste processor, saw its stock price plummet after it lowered its FY17 guidance.

NAME

5 Day

1 Month

YTD

NAME

5 Day

1 month

YTD

GARMIN LTD

18.3

29.1

51.3

TRANSOCEAN LTD

-9.8

-11.8

-18.8

MALLINCKRODT

15.0

36.1

3.1

RYDER SYSTEM INC

-10.0

-3.6

11.9

BIOGEN INC

15.0

41.7

7.8

KROGER CO

-10.5

-5.4

-21.6

STATE ST CORP

12.0

11.1

-0.3

WYNDHAM WORLDWID

-10.6

-2.1

-3.6

NEWMONT MINING

11.5

31.7

155.3

MURPHY OIL CORP

-10.8

-19.2

18.5

ILLUMINA INC

11.2

20.0

-13.0

MACY'S INC

-11.0

-0.8

-4.5

REGENERON PHARM

9.2

26.0

-19.9

CIGNA CORP

-11.3

-2.9

-15.1

NEWELL BRANDS IN

8.6

10.9

23.2

WHOLE FOODS MKT

-11.6

-0.7

-8.8

APPLE INC

8.1

8.9

0.4

ROBERT HALF INTL

-12.0

-6.9

-21.7

VARIAN MEDICAL S

7.7

14.9

16.9

LEVEL 3 COMM INC

-12.8

-5.7

-10.2

CELGENE CORP

7.6

18.0

-4.6

FORD MOTOR CO

-13.9

-9.7

-10.5

PIONEER NATURAL

7.0

1.6

27.3

TOTAL SYS SERVS

-13.9

-7.9

-2.1

HOLOGIC INC

6.0

15.2

0.9

AKAMAI TECHNOLOG

-14.0

-8.7

-5.1

ZIMMER BIOMET HO

5.6

10.1

27.8

WESTERN DIGITAL

-16.2

-7.8

-23.3

ALPHABET INC-A

5.6

12.9

2.8

STERICYCLE INC

-18.1

-13.5

-27.3

 

Sectors

The sector performances have been very interesting with only the high-beta healthcare and IT sectors managing to make both weekly and monthly gains, which is quite impressive given the steadily deteriorating sentiment. Tis was no doubt helped by some strong earnings reports by some of the big tech names like Facebook and Ebay. Energy stocks have understandably been the worst performers after WTI oil entered a bear market with a 20% price drop.

Factors

Corresponding to the gains seen in the healthcare and IT sectors, the momentum factor has seen the best performance of the past week, but it may well be a brief earnings season fillup. But it is interesting to see the pickup in the minimum volatility factor, and if the selloff continues this factor could be set to outperform again. But the collapse in the value factor is quite concerning, although there are some pretty valid criticisms of how MSCI calibrates its value factor.

Relative Strength Index

The RSI is a measure of the up-day versus down-day count of the past 14-days, and this really underscores the gains in the momentum factor and healthcare/IT sectors. The top 15 stocks by RSI are almost exclusively in the IT and healthcare sectors.

NAME

RSI

NAME

RSI

BIOGEN INC

87.8

TOTAL SYSTEM SERVICES INC

31.2

GARMIN LTD

83.5

AUTOMATIC DATA PROCESSING

31.0

MALLINCKRODT PLC

80.6

SOUTHWEST AIRLINES CO

31.0

ALPHABET INC-CL A

80.5

HARTFORD FINANCIAL SVCS GRP

30.9

AMGEN INC

80.3

EXXON MOBIL CORP

30.6

VARIAN MEDICAL SYSTEMS INC

79.2

EXTRA SPACE STORAGE INC

30.3

EBAY INC

79.0

EQT CORP

30.2

ST JUDE MEDICAL INC

77.4

UNIVERSAL HEALTH SERVICES-B

30.1

HOLOGIC INC

77.1

WALT DISNEY CO/THE

29.4

AMERISOURCEBERGEN CORP

76.8

EASTMAN CHEMICAL CO

28.9

ABBOTT LABORATORIES

76.7

TEGNA INC

28.2

REGENERON PHARMACEUTICALS

76.7

FORD MOTOR CO

27.5

NASDAQ INC

76.2

PUBLIC STORAGE

26.7

DUN & BRADSTREET CORP

75.9

KROGER CO

25.0

NEWELL BRANDS INC

75.4

STERICYCLE INC

19.9

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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.

ALXN – (BUY)

Alexion took a big dive in June after its main revenue generating drug Soliris failed to get approved for treating refractory generalized myasthenia gravis (gMG). But since then its stock has quickly been regaining ground, and this looks to continue alongside investor optimism in the healthcare space.

Angus_chart_030816_3

Minimum Volatility Hedges

If the market selloff continues, investors are likely to pile back into old favourite minimum volatility names such as American Water Works (AWK), Edison International (EIX), and AT&T (T).

AT&T – (Buy)

AT&T didn’t even blink an eyelid during Brexit and continued to see gains during the worst days of the selloff, and in the event of another selloff could see safe-haven buying push it through US$44.

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