The S&P 500 is off to one of its strongest starts in decades, traveling higher with little to no volatility. For the most part, many well-known names are following the market higher in a lockstep manner, meaning that identifying the companies that are breaking the ranks should go a long way toward detecting the companies you want to avoid or short as the market appears to be preparing for a short-term decline.
Setting our scanners to find these technical deviants yielded two well-known names that have struggled to maintain technical integrity as of late. We think this is an indication that these companies will suffer dramatically when the market finally hits a corrective phase.
Click to Enlarge Vending giant Coinstar (CSTR) operates the well-known Redbox and Coinstar machines found at a myriad of locations. The stock has traded with incredibly high volatility, despite the low-volatility nature of the recent broad market rally. Fundamentally, the earnings history has been positive, beating analyst expectations during the past four quarters.
Investors haven’t been able to cash in on the earnings results as the stock continues to lag the market, returning about 9% year-to-date as DVDs increasingly are replaced by online content from companies like Netflix (NFLX).
The volatile trading has CSTR wrestling with its 50-day moving average while the shorter-term technical trend has slipped into a declining pattern. In other words, Coinstar shares are getting tired of treading water and in danger of hitting our target of $46 during the next three months.
Click to Enlarge It’s fitting that we’re talking about Facebook (FB) on the anniversary of its poorly executed IPO. The shares are already getting tired after rallying from $25 to their relative high around $29. Now, the pullback in shares has the trendlines returning to a familiar declining pattern that warns of even lower prices.
On top of the technical patterns, you’ve got Rupert Murdoch tweeting about the decline in use by the younger crowd that makes up the majority of daily use of the social media giant.
Let’s face it (pun intended): The cool factor has left Facebook as us middle-aged and corporate types have crashed the party, chasing the hipster users off to other platforms like Tumblr and Snapchat.
Watch Facebook stock closely as it challenges the $26 level — a break below this price will rev up the sellers’ engines and likely rush FB lower to a target of $24-$22 in short order.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.