Both the late June and late July rallies were precipitated by actual or rumored government intervention. Volume and breadth have declined, but the AAII bullish sentiment number increased to 34.6% in the final July report, indicating that the public is feeling more positive — a negative indicator since the public is usually wrong.
The rally at the end of last month tells us that investors still expect the Fed to embark on another round of quantitative easing. But if the Fed fails to act, watch out below, because a Dow Theory non-confirmation is in place (the Dow industrials have appreciated but the transports have failed to follow).
The recent rally offers investors the opportunity to liquidate stocks that have been poor performers and hold cash since a downside correction is likely. Here is our list of stocks to sell in August:
Stock to Sell #1 – Abercrombie & Fitch (ANF)
Casual apparel retailer Abercrombie & Fitch (NYSE:ANF) has been downgraded by analysts following a decline in profit margins. The company has lost over 30% of its sales productivity since a peak in 2007.
The stock is in a bear market with tops that track its 200-day moving average and its bearish resistance line. In late July, the stock broke to a new low on a continuation gap with high volume. Sell ANF at the market.
Stock to Sell #2 – AVX Corp. (AVX)
Information technology company AVX Corp. (NYSE:AVX) is in a bear market. Earnings are expected to fall for the third consecutive year.
The stock broke down in May from a right triangle and fell 25% before attempting to consolidate. That was followed by a death cross where the 50-day moving average (blue line) drops through the 200-day moving average (red line) — a very negative chart signal.
From May to late July, AVX continued to fall, confined by the limits of a bear channel. But a new high-volume breakdown occurred in late June, confirming that even lower prices were likely. However, note the small arch up in the stochastic, which could result in a rally to $10 where it should be sold.
Stock to Sell #3 – Ceradyne Inc. (CRDN)
Ceradyne Inc. (NASDAQ:CRDN) makes advanced technical ceramic products for defense and automotive industries. Cutbacks in the government’s space and military programs have put pressure on earnings and the stock’s price.
In April, CRDN broke down on a breakaway gap from a triangle with its apex at just over $30. Within weeks, its 50-day moving average dropped through its 200-day moving average signaling a death cross. A three-month attempt to consolidate at above $24 failed in July, and the stock fell to its low of the year at $19.45.
The current rally is an opportunity to sell CRDN since the downtrend is intact. This stock could fall to the mid-teens.
Stock to Sell #4 – General Dynamics Corp. (GD)
General Dynamics Corp. (NYSE:GD) is the world’s fifth largest military contractor and one of the key makers of small jets. Because of its dependence on government orders, GD has had its earnings and price objective regularly cut by analysts.
Technically it is attempting to consolidate at $62 after falling from a high of over $74 earlier this year. But a death cross in June and high-volume selling, which tests the support at $62, will likely give way to lower prices.
Investors should consider selling this stock and switching to better long-term prospects. Traders may want to sell GD short with a trading objective of $56. Short-sellers should check with their broker for special requirements and place a stop-loss order at 5% above their short-sale price in order to protect against unlimited losses.
Stock to Sell #5 – Panasonic Corp. (PC)
Global macroeconomic weakness and lower demand for flat-screen TVs are conspiring to limit the growth of Panasonic Corp. (NYSE:PC).
The stock is in a pronounced long-term bear channel, which turns aside rallies at its bearish resistance line (red dash line) and its 200-day moving average.
The recent rally, which penetrated its 50-day moving average (blue line), is an excellent price at which to sell. The next low for the stock could be south of $5.
Stock to Sell #6 – Sealed Air Corp. (SEE)
Container and packaging company Sealed Air Corp. (NYSE:SEE) missed its Q2 earnings estimate by a wide margin. Cost of sales increased by over 50% year-over-year, and marketing, administrative and development costs increased 157%.
Technically the stock broke down from a triangle in April, which triggered a death cross in May. From May to mid-July, SEE attempted to consolidate at just over $15, but the disastrous Q2 earnings miss drove it to under $12 in late July.
The stock may rally in an attempt to cover the open continuation gap from $15.77 to $14.23. A bounce could give sellers an opportunity to eliminate positions or enter short sales.