Part 3

Last month, we saw the strongest market rally since 1987, which is now giving investors a great opportunity to collect some profits and wait for better market prices in the coming weeks in order to re-open their long-term buying positions.

As usual, after we complete our ETF Correlation Analysis we pick the two best stocks in each ETF that have the highest probability of beating the market in the current environment.

One of our top stock picks from the Industrial Select Sector SPDR Fund (XLI) for the month of May is:

Boeing (BA)

Company Background

The biggest company within the XLI ETF is Boeing with its 7.87% weight. Therefore, Boeing plays an important role for the overall performance of the XLI. The Boeing Company (BA) is a leader in the production of jet aircrafts, along with varied defense products, making it one of the largest defense contractors in the United States. The company’s customers include domestic and foreign airlines, the Department of Homeland Security, the US Department of Defense, and the National Aeronautics and Space Administration (NASA).

Current Position – COVID-19, Financial Performance

Boeing has suffered quite a lot already during the coronavirus pandemic due to the lack of demand among its airline customers. The pandemic has led to a closure of the airports and cancellation of flights, which has led to a huge decrease in the production of airplanes. Therefore, Boeing has decided to cut 10% of its staff due to the current financial situation it is going through. The company’s share price fell drastically from $350 in mid-February to only $90 a month later. In other words, the stock lost 74% of its value because of the coronavirus pandemic and the sell-off it caused. Yet, Boeing has been in business for more than 100 years and has become a global player in the sector it operates. Since we are positive the situation with the virus will calm down soon and people will start travelling again, thus increasing Boeing’s demand for its products, we believe it is worth looking forward to buying Boeing at such a huge discount. So, let’s have a look at the technical side of things.

Technical Analysis

The daily chart on Boeing shows the huge selling activity that had taken place already and the price has slowly started bottoming out from the $90 lows and that was a great motivation for investors who wish to hold Boeing in their portfolio. That led to a huge buying activity at $90, sending the stock towards the $183 highs. In other words, the stock more than doubled in only a week!

Since then we have seen more profit-taking interest as expected, which has so far sent the stock down towards the current lows at $130-$133. Yet, the chart clearly shows the key support mark at $121 that has been bringing lots of buying activity when the price reached those levels in the past. In other words, after the correction that has recently occurred we believe investors will be looking to buy again at that key support mark, which is still representing a great 66% correction from the highs at $350 the price was trading back in February before the pandemic. The technical indicators have already gone to the oversold territory and the Stochastics is crossing up at that area, giving further bullish indications. The lower Bollinger band line matches perfectly with the strong support at that level and the price has been failing to break that level to the downside since the beginning of April. Therefore, we believe more buying pressure will occur as soon as the price reaches the $121 and will be interested in buying around that level in order to maximize our followers’ profit potential to the upside.

Chart: The Boeing Company

We will start buying aggressively at the $122-$123 just above the key support level at $121. Should the price breaks the support and drops further we will be adding more to our buy positions at the $95-$100 just above the next key support level at $90-$91.

We will cash in half of our profits at the first profit-taking area staying at $150, followed by the next target at $180, below the $190 resistance where investors are expected to cash in profits and that could lead to a selling activity taking place at that level.

One of our top stock picks from the Financial Select Sector SPDR Fund (XLF) for the month of May is:

Citigroup (C)

Company Background

The financial sector in the US has done an incredible job in the past few years. It is important to say that the great economic growth together with the rise in interest rates have been among the main reasons for the huge financial success and stock market appreciation among the major US banks and other financial institutions.

Therefore, as our first stock pick from the XLF we have decided to analyze the performance of Citigroup, which currently accounts for 5% of the XLF’s portfolio.

Citigroup is the 3rd largest bank in the US and it is part of the Big Four banks together with JP Morgan Chase, Wells Fargo and Bank of America.

The Bank provides its customers with diversified financial services including consumer banking and credit, corporate and investment banking, securities and wealth management. Being a global leader in the sector it operates, Citigroup has got around 200 million customers in 160 countries around the world.

Current Position – COVID-19, Financial Performance & Technical Analysis

The company has kept on delivering great financial results over the past few years. The revenues and profits of the company have been rising steadily following the economic growth in the US and globally. Yet, due to the coronavirus pandemic it was only logical to expect Citigroup’s stock to be dragged down together with the whole stock market.

By looking at the chart, we could see the huge correction that took place during the massive stock market sell-off. Citigroup lost 56% of its value by dropping from $80 to only $35 in only 4 weeks. Since then though the stock has been following the positive investor sentiment and we have seen a strong bullish rally towards the $50 highs, followed by a profit-taking correction towards the current levels at $45. Taking into account the great financial performance of the company in the past 5 years and the current correction we believe it is worth going for a buying position on Citigroup. The recent correction has sent the price from $50 towards the current $45.50 and the price is testing a very strong support level at the current levels while the technical indicators are heading higher and giving more bullish indications to follow up on. The 38.20% Fibonacci retracement level matches perfectly with the key support level at that price, giving more buying indications.

Considering all the above-mentioned facts, we believe we should add Citigroup to our portfolio. Thus, we will start buying Citigroup at the strong support at $44-$45 where lots of buying pressure is expected to take place. Should the price break that key support, we will be interested in adding more to our buy positions at the next major support level at $40 where we will be buying even more aggressively in order to improve our average cost basis and further maximize our profits to the upside. We will cash in some profits at the first take-profit target at $50, followed by the next profit-taking area at $60-$65 where we will be fully cashing in our profits.

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Kind regards,

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