A last-minute rally at the end of June popped the major indices through their respective 50-day moving averages, giving the bulls hope that enough buyers would emerge to keep the rally going. But recent history does not support buyers who invest solely on the vagaries of European economic politics. Instead, investors should focus on U.S. markets for guidance, and the technical picture tells us that, for both the near and intermediate term, the bulls are not out of the woods yet.
Currently stocks are somewhat overbought and due for a minor correction, but for the summer they appear range-bound roughly to the lows and highs of June. Thus, rallies should be used to lighten up on stocks that have not performed well, are subject to economic uncertainties, or are negatively impacted by the Affordable Health Care Act.
Here is our list of stocks to sell in July:
Stock to Sell #1 – Alliant Techsystems (ATK)
Alliant Techsystems (NYSE:ATK) is the Pentagon’s largest ammunition supplier and also the world’s largest maker of solid-fuel rocket engines. Government spending cuts, especially in the defense sector and NASA, should negatively impact the company’s earnings. Earnings in FY 2012 (ended in March) fell to $7.93 versus $9.32 in FY 2011, and analysts look for a decline to $6.44 in FY 2013.
The stock is in a clearly defined bear market with a bearish resistance line at $55 and near-term resistance at the top of a bear channel at $50. Investors should sell ATK at the market and redeploy assets elsewhere.
Short-sellers should sell ATK short with a price objective of $48. Short-selling is a speculative, high-risk technique. Check with your broker for special margin requirements and use a stop-loss order to protect against potentially unlimited losses.
Stock to Sell #2 – CONSOL Energy (CNX)
In our Stocks to Sell in April, with CONSOL Energy (NYSE:CNX) trading at $33.80, I said, “This stock has been in a bear market since March 2011. It is the leading developer of bituminous coal in the Appalachian Basin with enormous reserves. However, increased government regulation that limits the use of coal as an energy source has resulted in erratic earnings and a downward spiral in the price of its stock.”
Since early 2011, the stock has been trading in a bear channel with a target under $26. Recently, the stochastic bounced to an overbought status and the stock jumped. Investors should use the rally to sell CNX.
Stock to Sell #3 – Deutsche Bank AG (DB)
Deutsche Bank AG (NYSE:DB), a global securities and bank holding company headquartered in Germany, has recently had its earnings downgraded by Wall Street analysts as problems in the EU intensify.
It was on our list of Stocks to Sell in May. Technically the stock completed a dreaded head-and-shoulders top on May 2, as it broke the neckline at $42.50. Since the high at the head of the formation is at $52, the approximate target for the breakdown is $32, where the stock found support in September 2011. A bounce in late June popped DB to its 50-day moving average at over $37, where it should be sold.
For speculators, DB is a candidate for a short sale. Check with your broker regarding margin and other shorting requirements, including whether the stock may be borrowed. And use a stop-loss order to protect against potentially unlimited losses.
Stock to Sell #4 – Federal-Mogul Corp. (FDML)
Federal-Mogul Corp. (NASDAQ:FDML), a major supplier of parts, components, modules and systems to auto, engine, marine, railroad and other heavy industries, posted an earnings loss of 91 cents in 2011 versus a profit of $1.62 in 2010.
On a recent rally, FDML failed to hold above its 50-day and 200-day moving averages as huge selling drove the stock back into a bear market. And even though the stochastic is oversold, it could remain so for an indefinite period. Sell FDML at the market.
Stock to Sell #5 – J.C. Penney Co. (JCP)
J.C. Penney Co. (NYSE:JCP) is the leading mall-based family department store operator in the United States, with over 1,100 retail locations and online shopping. But earnings have been slipping despite management’s introduction of “Fair and Square” pricing where prices have been lowered by about 40% and promotions have been cut. Earnings in FY 2013 (ended Jan. 31) are expected to fall to $1.05 versus $1.26 in FY 2012.
The long-term chart of JCP clearly illustrates a breakdown through a bullish support line at about $26 on very high volume. Investors and speculators alike should sell JCP at the market.
Stock to Sell #6 – WellPoint Inc. (WLP)
WellPoint Inc. (NYSE:WLP) is the largest U.S. health benefits company serving over 34.3 million medical members through its affiliated health plans. But under the Affordable Care Act, it could be subject to high risk.
The company branched out by buying out 1-800 CONTACTS Inc., the largest direct-to-consumer contact lens retailer in the nation. But according to InvestorPlace adviser, Louis Navellier, “Even a big buyout like this isn’t enough, because WellPoint still has a lot of financial issues to resolve before it becomes a buy in my book.”
The stock gapped down following the Supreme Court’s health care ruling, indicating its vulnerability under the new program. Technically WLP has broken from a rounding top, which is a very bearish formation, with a price objective under $50.