by Dan Burrows | May 28, 2014 3:24 pm
Sometimes it takes a strong market to reveal which names are stocks to sell. The S&P 500 keeps setting new records — closing above 1900 for the first time ever in late May — but that hardly means every single constituent of the broad-market index is participating in the fun.
Indeed, plenty of stocks are well below their 52-weeks highs — never mind their all-time highs — and look to have more weakness ahead. A stock with deteriorating technicals even as the market marches into uncharted territory is not a bullish sign. By dint of that alone, you should consider certain names to be stocks to sell.
Other technical indicators are flashing warning signs, too. Whether it’s price momentum or seasonality, these stocks aren’t going to help your portfolio in the near future — and that’s a big shame heading into this time of year.
After all, June-July is actually a decent period for market performance. In such an environment, any broad index fund will allow you to participate in the gains. If you have any hope of actual outperformance, you need to prune stocks to sell from your portfolio now, or they’ll act as a drag on your returns.
When the technicals look as weak as they do on these names, they’re stocks to sell. Here are five stocks to sell for the month of June:
The Aflac (AFL) duck would probably cough up a hairball if it knew how bad June was shaping up to be for AFL stock. Shares in the supplemental insurance company have lost more than 8% so far this year, and the technicals say there’s more pain to come.
Aflac stock has no price momentum. It’s 9% below its 52-week high and trailing its 50-day and 200-day moving averages by 2% and 3.5%, respectively.
Neither is Aflac stock anywhere near oversold. On a scale of 1 to 100, with 100 being the most overbought level, AFL stock has a relative strength indicator of 42. The industry average, meanwhile, stands at 51.
Finally, seasonality is not a friend to Aflac stock heading into the summer months. Based on a decade’s worth of performance, AFL stock has an implied downside next month of more than 1%, according to data from Thomson Reuters Stock Reports.
Neither sentiment nor historical performance are working in AFL’s favor these days, landing it on our list of stocks to sell.
Retailers are slogging through one bad month after another and few names seem to be immune. From discounters like Walmart (WMT) to specialty chains like Abercrombie & Fitch (ARO), consumers just aren’t spending like they used to.
The terrible sales environment is clobbering shares in Bad Bath & Beyond (BBBY). The stock is down 25% for the year-to-date. Unfortunately for BBBY, the weakness only leads to more weakness, as faltering technicals snowball to drag shares down further.
If there’s any price momentum in Bed Bath, it’s to the downside. BBBY stock is 24% below its 52-week high, 4.4% its 50-day moving average and 14% below its 52-week moving average. Additionally, there’s no hope to be found in BBBY’s relative strength indicator, which stands at 39 vs. an industry average of 50. Sure, it’s getting toward being oversold, but with good reason. Don’t expect buying on valuation anytime soon.
Most damning is that this is a seasonally weak period for Bed Bath even in good years. A decades worth of data suggests that BBBY stock will lose something like 4% in June and another 1.7% in July.
The fundamentals were obviously going against BBBY. With technicals in the same camp, BBBY joins our group of stocks to sell.
Ebay (EBAY) was having a down year even before it disclosed a massive data breach. Mixed fundamentals and crummy technicals may be piling on, but there’s no doubt EBAY looks to have more weakness ahead.
Ebay is trading below too many key levels to have any price momentum at all. It’s 13% below its 52-week high, 3.5% below its 50-day moving average and 3.4% short of its 200-day moving average.
Nor does eBay have any price momentum from being oversold. The relative strength indicator stands at 45 vs. an industry average of 47. As weak as the price looks, investors haven’t bailed out enough to warrant buying on valuation.
If all that weren’t bad enough, June might be a great month for the market, but it stinks for eBay stock. Historically, eBay loses 4.7% in June, gaining back about half that in July.
If you’re looking for stocks to sell, eBay has to go. The technicals say eBay will only weigh on your portfolio for at least a month.
You can add deteriorating technicals to the list of woes besetting General Motors (GM). The GM stock selloff initiated by the automaker’s recall of 13 million cars worldwide caused shares to break through key levels on the way down.
GM stock is a good 19% below its own 52-week high and 7% below its 200-day moving average. GM stock is only 1% below its 50-day moving average, but technical weakness suggests that will widen soon.
Neither can investors in GM stock hope for buying on oversold conditions. The relative strength indicator is practically a wash at 47.
Worst of all is that June is never kind to GM stock. Late spring and early summer might be a good time for a test drive, but it sure isn’t good for shares. Based on a long track record, GM stock has an implied loss of 6.7% in June. It historically tends to fall — albeit fractionally — in July.
GM stock could become a buy once it sorts out its recall headaches and shares find technical support. Until then, count it among the stocks to sell.
Faced with the expiration of patents on blockbuster drugs such as Lipitor, Pfizer (PFE) is desperate to buy its way out of its pipeline problems. That’s why it pursued AstraZeneca (AZN) as an acquisition target. AZN didn’t want any part of the deal, however, and now the technicals don’t look much better than the fundamentals.
Optimism for PFE stock evaporated last month — the market wasn’t too keen on the merger either — and that has it flirting with technical weakness. PFE stock has fallen 7% since April 2, breaking through areas that should lend support.
PFE stock slipped 3% below its 50-day moving average and 200-day moving average. PFE stock is also 10% below its 52-week high. Although PFE stock appears to be climbing back, the technicals say that will be a sucker bet.
Again, there’s no hope that oversold conditions will bring in the buyers. PFE has a relative strength indicator of 45. Furthermore, based on 10 years of performance, June is not friendly to PFE stock. It has an implied downside of 3.1% for the month.
PFE bounces back a bit in July, usually, but not enough to make up for lost ground. It needs more than a percentage point or two to achieve technical strength, making it look like one of our stocks to sell.
As of the writing, Dan Burrows did not hold a position in any of the aforementioned securities.
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