by Sam Collins | February 6, 2012 7:09 pm
Positive economic and earnings gains have driven the Dow to its highest level since May 2 and the highest level on the S&P 500 since July 21. The news that got the most attention was from the unemployment index, which fell to 8.3% — a three-year low.
Technically, the major indices have broken into bull-market trends after executing golden crosses. A golden cross is the intersection of the 200-day moving average by the 50-day moving average and is generally accepted as a “long-term validation of a rally.” According to Birinyi Associates, stocks have averaged a 6.6% gain following 26 golden crosses that have occurred since 1962.
The future appears bright even after a run of over 15% from its November lows by the broad-based S&P 500 since many companies have huge cash positions. And even after the recent advances the index is still 13.5% below the October 2007 high.
But some stocks that have participated in the advance have diminished potential for future appreciation. It is primarily those stocks with limited price potential that are excellent candidates for the production of cash to be reinvested following an expected round of profit-taking.
Here is our list of stocks to sell in February:
Amdocs Ltd. (NYSE:DOX) is a software maker for the communications, media and entertainment industries.
The stock fell in August like many other tech stocks, but never fully recovered. Its earnings fell below the fiscal Q1 Zacks’ earnings estimate, and the continuation of its business with AT&T (NYSE:T) is questionable.
Our internal indicator, the Collins-Bollinger Reversal (CBR) flashed a sell signal accompanied by high volume on Feb. 3, and a sell from the stochastic indicator. The advance from the December lows should be used as an opportunity to sell.
IT software manufacturer CA Inc. (NASDAQ:CA) had a pop recently, but in the context of its long-term chart it is approaching major resistance.
The recent rally from $20 to $26 appears to be an excellent opportunity to sell this tech stock with limited potential. Insiders have been heavy sellers during the last 12 months.
Credit Suisse Equity Research commented recently that its new product sales “disappointed again,” and several fundamental analysts have targeted its price at $24 to $26 within 12 months. Sell now.
Gaming company Electronic Arts (NASDAQ:EA) provides its products for platforms like the Sony PS3, Xbox 360 and Nintendo Wii.
The stock is in a sharp decline following a death cross in early December and a reversal from a resistance line (formerly the bullish support line) on Feb.2. Insiders have been heavy sellers for both the three-month and 12-month periods. The rally back to $20 is an opportunity to sell this high-profile company that is in a bear market.
Engineering, construction and procurement company McDermott International (NYSE:MDR) focuses on designing complex offshore oil and gas projects. But its execution has been weak and earnings have declined in the past five quarters.
MDR is down 38% in the past year, but up 15% in the last month. Technically it closed a gap opened in October as huge selling dropped it to its low of the year. A rebound that closes such a gap is not unusual and is an excellent opportunity to unload this non-performer.
Note its overbought stochastic and that it is approaching a significant area of resistance between $13 and $15. Sell MDR at market.
Casino operator MGM Resorts International (NYSE:MGM) has lost money in each of the past three years.
Although the stock has bounced 75% from its October low, its future potential appears technically limited. The stock’s price is approaching a major hurdle — the convergence of two significant resistance lines between $14 and $15.
There has been high selling by insiders, and Goldman Sachs Equity Research cut their outlook for MGM to “neutral” from “buy.” Sell MGM at market.
An embarrassing miscalculation on customer pricing led to Netflix’s (NASDAQ:NFLX) decline from $300 in July to under $65 in November. Since then, management has tried to attract new customers, but weaker-than-expected subscriber growth and competition for streaming services from Verizon (NYSE:VZ), Redbox and others has diminished the company’s potential.
Technically NFLX has doubled from its low and is now at a significant resistance line. Its stochastic is overbought, buying volume is declining and insiders have been sellers. The recent rally is a good opportunity to sell this once-unique company’s stock.
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