by Sam Collins | May 6, 2013 5:20 pm
Despite unfavorable economic reports, a weak European economy, and new threats of conflict in the Middle East, stocks have responded with the Dow and S&P 500 setting new highs and the Nasdaq jumping to a 12-year high.
And so, as we enter what is traditionally the weakest month of the year, the major indices are telling us that a new leg up in the bull market is more likely than the “sell in May” scenario.
In a powerful bull market, the rising tide floats most boats, but not all. This month, we’re focusing on stocks that face new economic challenges that could inhibit their growth and those that technical analysis highlights as ones that should be sold. Proceeds should be directed to higher-growth areas that will fully participate in the rewards that stocks in strong uptrends can provide.
Here is our list of stocks to sell in May:
Bio-Reference Laboratories (NASDAQ:BRLI) provides clinical laboratory testing services for the detection and treatment of diseases, primarily in the greater New York metropolitan area.
In one year, the stock rose from $12 to above $30 as a result of improving revenues and earnings. But a recent “whistle blower” lawsuit, which alleges wrongful termination and billing practices, has cast a cloud over the company’s future.
Early in April, the stock broke down from a bearish triangle through support at $25. It recently rebounded to $25, but had a bearish reversal day on May 1. If BRLI fails to rise above its 50-day moving average soon, look for another leg down with a target of $20 or lower.
Freeport-McMoRan Copper & Gold (NYSE:FCX) engages in the exploration of mineral resource properties, with assets in North and South America, Indonesia and Africa. It is the world’s second largest copper producer and a major producer of gold. But its merger with Plains Exploration & Production Company (NYSE:PXP) and McMoRan Exploration Co. (NYSE:MMR) is considered a negative, and analysts estimate that the result will reduce FCX’s value as a copper producer. And copper prices have been in a downtrend, reducing the revenue contribution of FCX’s major product.
The stock is in a bear market, having executed a “death cross” in December, and failing to close above its 200-day moving average on three rally attempts since then. It appears that a fourth rally failed on May 3, when FCX turned down from its 50-day moving average following a breakdown from a major support line just above $30.
Shareholders should sell part of their position at the current price and sell into possible rallies after that since the long-term trend is down.
Newfield Exploration Co. (NYSE:NFX), a domestic oil and natural gas exploration and production company, has had its earnings estimates revised downward by several analysts following a disappointing Q4 report, which missed estimates by a wide margin. High debt and falling production combine to limit future earnings, and insiders have been heavy sellers. Q1 2013 showed a slight improvement, but NFX still had a net loss of $0.06 per share.
The stock is in a bear market, and in April, it broke below its bearish support line. A recent rally from its low at $19.57 resulted in a rebound, and on May 3, it closed above the 50-day moving average. This positive short-term development could take the stock to $24 where it should be sold.
QLogic Corp. (NASDAQ:QLGC) designs and supplies network infrastructure products that provide and manage computer data communications. Last year, earnings fell in three of the four quarters versus 2011, and analysts estimate 2013 and 2014 will bring further declines.
Technically, QLGC is in a bear market with resistance at its bearish resistance line at $11.50. In March, it failed to penetrate resistance, and in early May, it broke through its bearish support line at $10, confirming that a solid decline is intact. Sell QLGC at the market or sell it short with a price objective of $8.
With inflation flat and earnings choppy, some analysts have lowered their opinion and earnings outlook for the major food distributor, Sysco Corp. (NYSE:SYY). For the past four years, annual earnings have been stuck between $1.99 and $1.95, with $1.95 estimated for 2013. One major analyst has an outright “sell” on the stock following its latest quarterly earnings report, which showed EPS of $0.40 versus an estimated $0.43.
Technically, SYY is consolidating within a triangle, but two sell signals from our proprietary internal indicator, the Collins-Bollinger Reversal (CBR), as well as a MACD sell signal, tell us that the chances of a breakdown in price are high. Sell SYY at the market.
Long-term bonds and bond funds like iShares Barclays 20+ Year Treasury Bond Fund (NYSE:TLT) should be sold because interest rates are at the lowest levels in over 100 years due to a policy of quantitative easing. When the Fed stops buying bonds, interest rates will rise and bond prices will plummet. It is estimated that a 1% move up in interest rates could take 10-year T-bond prices down 8%, and a 2%-3% move up could result in a 20% to 30% drop in bond prices.
In April, fear of a stock market correction and the Fed’s stated policy of buying $85 billion per month of bonds caused a rebound in bond prices. This recent rally presents holders of TLT and other long-term bonds and bond funds, with an excellent opportunity to sell and place the proceeds into stocks or money-market funds.
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