Last month, I suggested that unless the bulls could overcome a day of key reversals on the major indices with a resounding rally, accompanied by solid breadth and higher volume, equities could be in trouble. What followed was a demonstration of the power of the bull. For the month of November, the Dow rose 3.5%, the S&P 500 gained 2.8%, and the Nasdaq was up 3.6%. The Dow and S&P 500 scored new all-time highs, while the Nasdaq ran to a 13-year high, all three breaking above psychologically important round numbers.
My analysis indicates that there are more new highs to be made in December, since institutional investors usually dress-up their portfolios before year-end by purchasing large-cap stocks. And this year, with blue chips lagging, that is even more likely.
However there are several big caps that should be sold. Investors should adjust their portfolios to take advantage of possible values in blue chips by selling any stock that is not achieving managements’ goals or keeping pace with an accelerating bullish trend.
Here is my list of stocks to sell in December:
Stock to Sell #1 – eBay (EBAY)
eBay (EBAY) is one of the world’s leading e-commerce sites. However, I listed it as one of my Stocks to Sell in September, when it was trading near $53, saying “acquisitions and expansion have limited growth for several years. Its entrance into developing markets has been unsteady, and regulatory and legal matters could have a negative impact on future earnings.”
In the past 60 days, consensus estimates for 2014 earnings have been reduced $0.04 per share to $3.14. Trading at 19 times this year’s estimated earnings and more than 16 times next year’s, EBAY is no bargain,
Technically the stock has broken down from the bearish rounding top noted in September, and has sliced through its 50-day moving average followed by a weak rebound in October. A series of high-volume liquidations mark the decline, and MACD is now in bearish territory. Sell EBAY on this slight rebound above $50.
Stock to Sell #2 – IBM (IBM)
“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. It estimates earnings of $17.89 in 2014, but that is uncertain until management can demonstrate improvement in the lagging areas.
I noted in November, with the stock just below $180, that it had topped near $215 in May, beginning a series of declines that created new lows after rallies failed to penetrate the overhanging 50-day moving average.
In October, the stock broke to a low at about $173 on a high-volume continuation gap. A subsequent reaction rally closed that gap but failed to hold above its 50-day moving average, now at $182.
Traders should sell IBM short with a downside target of $170 and a stop-loss at $187. Long-term holders should protect their positions with defensive options strategies.
Stock to Sell #3 – Netgear (NTGR)
Netgear (NTGR) provides networking products to consumers, businesses and service providers. On my Stocks to Sell in September list, I noted, “Slow growth expectations continue a pattern that began in 2011 with earnings of $2.41. The company earned $2.57 in 2012 and is expected to earn $2.30 this year.”
Since then, the consensus estimate has been reduced by a nickel to $2.25, while the 2014 estimate is $ 2.43 per share.
In November, the stock rebounded to its quadruple-top resistance line at $32.50. Since MACD is now overbought and resistance is high, those holding NTGR should take this opportunity to protect positions with options or sell. Short sellers should enter a stop-loss order at $34.
Stock to Sell #4 – Target (TGT)
Retail giant Target (TGT), which has nearly 1,800 stores, reported disappointing fiscal third-quarter results in November, missing revenue expectations and showing a 46% decline in profits. It also lowered its outlook for the full year. Consensus estimates for fiscal 2014, ended in January, and fiscal 2015 have fallen substantially in the past two months to $3.62 and $4.70, respectively.
Technically TGT violated its long-term bullish support line in September, and a reaction rally in October and November failed at the 200-day moving average (red line). The chart flashed a death cross (50-day moving average crossed through the 200-day moving average) in September, a very bearish sign, and MACD is currently on a sell signal.
High selling volume has restricted rallies to mere bounces, and the stock is now failing at the 50-day moving average. Sell TGT at the market.
Stock to Sell #5 – Ultratech (UTEK)
Ultratech (UTEK) develops and manufactures laser thermal processing and inspection equipment. On June 4, with the stock near $37, I noted that analysts projected UTEK would underperform the market over the next 6-12 months.
Since then, the stock executed a second death cross and turned down from its bearish resistance line in July and October. MACD is overbought and the stock is in a bear market, so the recent reaction rally appears doomed to fail at its 50-day moving average above $26.
Sell UTEK at the market. Short sellers should enter a stop-loss order at $28.50.