Sell Before a Correction
Last month, the danger of European debt contagion, tensions in Korea, and inflation in China were in focus. But late in January, those concerns gave way to worries over political revolutions in Tunisia, Egypt and other countries in the Middle East as international oil companies could be threatened. As tensions grow, investors should consider which stocks to sell. They would be wise to cull both losers and stocks that have yielded major profits, as well as those being downgraded by analysts since a normal correction appears likely.
Where do the markets go from here? The markets gained slightly last week, despite Moody’s downgrading of Egyptian bonds, but with 8% of the world’s goods and 3% of its oil sent through the Suez Canal and Egypt’s pipeline, there is reason for concern.
Technically, the next support for the Dow industrials is at the 20-day moving average at 11,883 with 11,740 being a stop-loss point for traders. But 11,630 (50-day moving average) to 11,450 is the major support zone, and a penetration of that zone would cause a change in trend. The next support for the S&P 500 is at 1,271, and then the major support zone at 1,260 (50-day moving average) to 1,225.
The following are stocks to sell now:
Stock to Sell #1 – Coinstar Inc. (CSTR)
Coinstar Inc. (NASDAQ: CSTR) is a provider of automated retail solutions and operates self-service coin-counting machines.
The stock has broken from a double-bottom with a high-volume breakaway gap. Although meeting analysts’ earnings estimates, the company has had numerous legal problems. On Friday, two firms filed class-action lawsuits against the company, and the stock reacted with a technical breakdown. Sell CSTR at market.
Stock to Sell #2 – Equinix Inc. (EQIX)
Equinix Inc. (NASDAQ: EQIX) is global network neutral data center that operates 49 International Business Exchange (IBX) centers.
For Q3 2010, the company met the earnings estimates of 24 analysts covering the stock. But for each quarter, the consensus estimate had been regularly reduced, and for Q4 2010, it has been reduced to 23 cents — a 45% decrease over the prior year Q4.
Technically, the stock is in a broad channel down with the stochastic now overbought. Sell EQIX at market.
Stock to Sell #3 – Newmont Mining (NEM)
Newmont Mining (NYSE: NEM) is one of the world’s largest gold producers, and is also a producer of copper.
Standard & Poor’s rates NEM a “four-star buy,” but recent overbuying of gold by China and others has driven prices to record highs where we should expect to see more profit-taking. Long-term buyers of the stock should continue to hold, but traders and those seeking short-term gains should cash in since the stock recently issued a technical signal called a “death cross” (50-day and 200-day moving averages cross), which targets a decline to about $45.
Stock to Sell #4 – PPL Corp. (PPL)
Energy and utility holding company PPL Corp. (NYSE: PPL) generates electricity from power plants in the northeast United States and some western states.
Although Q4 profits more than doubled, PPL missed its revenue projection and fell short of analysts’ estimates. Standard & Poor’s and other analysts have reduced PPL to a “hold,” and earnings estimates have been reduced. S&P targets the stock at $28 within 12 months, so more aggressive investors should sell now for better opportunities in other sectors.
Technically, the stock made another new low on Feb. 4, and appears to be heading lower. The dividend of $1.40 currently appears to be safe, so income investors may want to hold the stock, but others should sell.
Stock to Sell #5- Qiagen NV (QGEN)
Qiagen NV (NASDAQ: QGEN) is a biotech holding company that provides technologies and products for analytical preparations. Several analysts, including Ford Equity and Standard and Poor’s, have cut their rating on the stock and reduced the 12-month target from $24 to $21.
Technically, the stock is in a recovery channel, but is below both its 50-day and 200-day moving averages, and thus, is still in a bear market. A violation of $18 would likely lead to much lower levels. Sell at market.
