by Sam Collins | November 5, 2013 11:09 am
The key reversal day on Oct. 30 on the Dow Jones Industrial Average, S&P 500, Nasdaq and Russell 2000 puts enormous pressure on the bulls to overcome this negative technical development.
The higher-quality stocks of the Dow and NYSE Composite must respond with a heavy counterpunch to turn back the bears. With the new money that usually flows from pension plans at the beginning of the month, they may have the power to turn the market up. But if this new money fails to turn around October’s negative close, we could be in for some serious profit-taking and perhaps even a correction of 8% to 10%.
Now is a good time to weed out weaker names that could suffer more than others. Here is our list of stocks to sell in November:
On Oct. 31, petrochemical equipment maker Dresser-Rand (DRC) reported Q3 revenues of $633.9 million, which were short of the $829.7 million consensus estimate. Earnings came in at $0.64 per share, up from $0.54 in the same quarter last year.
Following the news, DRC broke sharply to the downside, leaving a breakaway gap from $60.73 to $58.97 in its wake. And it was the highest volume day for the stock in over a year.
Even though there could be a reflex rally, it appears that the back of its bull trend has been broken, and so it should be sold. The next support is at the triple-bottoms of last year at about $50.
“Big Blue” is the bluest of the blue-chip technology giants. Its global capabilities in information technology, software, computer hardware and related financing make it a household name. But IBM (IBM) is a company in full maturity, so future growth must result from strong trends in emerging markets, improved profitability in its more developed markets, and cloud computing. S&P expects a 4% decline in revenues in 2013 and earnings of $16.91 per share, down from an earlier estimate of $17.38.
The stock topped near $215 in May, beginning a series of declines that then created a series of new lows after rallies failed to penetrate the overhanging 50-day moving average. In October, IBM broke to a low at about $173 on a high-volume continuation gap. It is again running into its 50-day moving average, now at $184, and appears to be turning from it again.
Traders should sell IBM short with a target of $184 and a stop-loss at $190. Long-term shareholders should protect their positions with defensive options strategies.
Homebuilder Lennar (LEN) is also a provider of financial services and an investor in distressed real estate through Rialto Capital Management. Although the company has exposure to the uncertainties of the real estate market, analysts expect revenue to increase 42% in fiscal 2013, ended in November, following a 33% rise in fiscal 2012.
But the stock’s chart is telling a different story. After triple-tops made in January, March and May, the stock experienced a sharp sell-off in June that penetrated support at a quadruple-bottom. Subsequent rallies in September and October failed at the 200-day moving average, now at $38.
Steady selling and a new MACD sell signal tell us that the stock is headed lower and that support at the September bottom at $32 will probably not hold. Sell LEN short at $36-plus with a stop-loss at $39.
Newmont Mining (NEM) is one of the largest gold and copper producers in the world. In my Stocks to Sell in June report, I said, “It is in a pronounced bear market with fragile support at its recent low at $30.30. Sell NEM at the market or sell it short with a price objective in the mid-$20s.”
S&P recently downgraded its rating on Newmont to “BBB” from “BBB+” following a Q3 revenue miss and citing the impact of lower gold prices on its business.
NEM is in a bear market with resistance at its 50-day moving average at $28.50. But selling has not abated and, after a new MACD sell signal, the stock appears destined to break its low at $25.33.
Sell NEM at the market. There is no firm downside objective, but the stock could fall to the mid-teens.
Specialty retail home furnishings chain Pier 1 Imports (PIR) operates over 1,000 stores in the U.S., Canada and Puerto Rico. In May, S&P reduced its rating to “two-stars” (“avoid”) based on “lackluster long-term growth prospects.” And in September, the company cut its earnings estimates for fiscal 2014, ended in February.
PIR’s chart shows a huge rounding top — a very bearish formation that, in September, confirmed a negative outlook by smashing through a support line at $21.50, accompanied by a death cross and downside breakaway gap. In October, the stock rallied from a low of $19 but was turned back by its 50-day moving average.
Sell PIR if you own it. Traders should consider a short sale at $20.50 with a target of under $18. A stop-loss at $22.50 is suggested.
Sony (SNE) is recognized worldwide as a quality electronics equipment manufacturer. However, the consumer electronics industry is saturated with products, and weak consumer spending and a lack of revolutionary products is driving sales and profits lower. On Oct. 31, the company reported worse-than-expected quarterly results, causing S&P to lower earnings estimates and cut its price target.
The stock responded by crushing support at its 200-day moving average at $19. It opened a breakaway gap on very high volume and its MACD flashed a major sell signal.
SNE could have a reaction rally back to $18-plus, but shareholders should use any rally as a selling opportunity. Selling at the current price is also warranted. No support is obvious, but it appears that the stock could fall to the low teens.
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