The most powerful January in years resulted in huge returns for equity holders and should be able to support all but the most vicious sell-offs. Thus, all pullbacks should be viewed by investors as buying opportunities. Long-term investors should add to high-quality positions, and traders should focus on those sectors that have the best records of success.
However, stocks that have failed to perform in the rally that began in November, and those that are more than 20% above their 200-day moving averages, should be cut.
The other area that investors should scrutinize is long-term bonds. The Fed’s ability to control rates is having less impact. Investors are selling bonds and bond funds at a huge clip, and either shortening their maturities or putting money into stocks.
Here is our list of stocks to sell in February:
Stock to Sell #1 – Activision Blizzard (ATVI)
Activision Blizzard (NASDAQ:ATVI) publishes computer games and other interactive entertainment software. Analysts are projecting a decline in the industry’s growth rate, and with the possibility of a continuation of the slowdown in economic growth, product delays, and signs that the industry is oversaturated with games, the stock is overpriced.
ATVI is currently sitting at the top of a bear market channel and just below its 200-day moving average. This is normally the ideal place to sell short, but use a buy-stop order at $12.20 to protect against an upside breakout. The downside target is $9.75.
Stock to Sell #2 – Camden Property Trust (CPT)
Real estate investment trust (REIT) Camden Property Trust (NYSE:CPT) acts as manager, owner and builder of multi-family apartment communities. Operating expenses, occupancy rental rate pressures, and increased real estate taxes have caused analysts to recently downgrade their opinion of CPT.
Technically, the stock is at the top of a volatile consolidation pattern with support at $63 and resistance at $72. On Feb. 1, the stock executed a daily reversal, a sell signal was triggered by our internal proprietary indicator, the Collins-Bollinger Reversal (CBR), and the stock broke down through a steep angle of advance. Although some support exists at its 200-day moving average at $67, the chances of a more extended decline to $63-$64 are high.
Stock to Sell #3 – Diodes Inc. (DIOD)
Diodes Inc. (NASDAQ:DIOD) produces semiconductor parts for communications, computing, consumer electronics and automotive markets. In the last two years, both revenues and earnings have dropped. But in Q3 2012, revenues increased 4% on a year-over-year basis.
The stock has rallied from under $14 to over $19 in the last three months. But it is now at a resistance line at about $19.50, and the chances are high that it will have a difficult time punching through that line. Note the low volume on buying versus the higher volume on selling, a bad technical sign.
Stock to Sell #4 – Lockheed Martin Corp. (LMT)
Lockheed Martin Corp. (NYSE:LMT) is the world’s largest military weapons manufacturer and a significant supplier to NASA. Cutbacks in both military and NASA spending from the 2011 Budget Control Act and defense budget “sequestration” are expected to put pressure on LMT’s earnings for several years.
The stock has broken down from a bull channel on heavy volume. Although LMT could have temporary recovery rallies, it is now in a downtrend and should be sold. The next support is at $80 with resistance to rallies at $90.
Stock to Sell #5 – Take-Two Interactive Software (TTWO)
Take-Two Interactive Software (NASDAQ:TTWO) develops and sells interactive entertainment for Sony (NYSE:SNE), Nintendo and Microsoft (NASDAQ:MSFT). Video game sales have been generally disappointing, and so TTWO’s revenues have fallen from $1.1 billion in 2011 to $825 million in 2012. One of its major games, Grand Theft Auto V, will be delayed until September, adding further to a disappointing revenue stream.
Technically, TTWO is still in a bull channel, but double CBR sell signals and high-volume selling spikes, along with a sell signal from its stochastic, are all very unfavorable signals. Holders should enter a stop-loss at $11, which is slightly below its 200-day moving average now at $11.16. A break there could result in a plunge to $9 or lower.
Stock to Sell #6 – Bonds and Bond Funds
Note in the chart of the 30-year U.S. Treasury bond that the line just above 3% yield. This is where the Federal Reserve tried to defend the bond from further declines.
On Wednesday, Dec. 12, the Fed announced a new stimulus program (QE4) with the intent of keeping interest rates under 3% on the 30-year Treasury bond. But market forces have intervened, and bonds closed above 3.2% for the first time since last April. This is a change in the market’s reaction to Fed easing and indicates for the first time that the bond bubble could be about to burst.
Investors who own long-term bonds (10-year-plus maturities), and especially those with bond funds and ETFs, should sell, because once a rate acceleration takes place, losses in long-term bond holdings rapidly accumulate.