Tactical investors always need to remain vigilant — not only about which sectors and stocks to buy, but which sectors and stocks to sell. That’s especially true as we clean the slate and begin a new investing year.
Indeed, going back to 1928, the S&P 500 gains an average of 1.2% in January, according to Yardeni Research. How good is that? Only three months have a better track record for returns.
However, if you’re looking to beat the market, you need to know which stocks to sell before they become a drag on your January returns. Fortunately, we can use tools from technical analysis, such as price momentum and seasonality, to help identify which stocks to sell.
As such, we searched the S&P 500 for stocks to sell for January by looking for names flashing warnings signals of technical weakness and past underperformance. Just have a look at the charts (courtesy of Yahoo Finance), and you’ll see that downward price momentum and a history of poor seasonality makes these five names short-term stocks to sell:
Stocks to Sell — Amazon.com, Inc. (AMZN)
Click to EnlargeThe post-holiday selling season hangover is tough on lots of stocks in January, especially retail names, so it’s not all that surprising to see Amazon.com, Inc. (AMZN) on this list.
Maybe Amazon will bounce back next year after having a terrible 2014 — AMZN is off 24% for the year-to-date — but it won’t happen at the beginning of the new year.
AMZN, on average, loses 2% in January, according to a decade’s worth of data tracked by Thomson Reuters Stock Reports. (AMZN makes a list of stocks to sell for February, too, when it falls another 1.9%.)
As for price momentum, take a look at the chart and you’ll see AMZN doesn’t have any — at least not to the upside. It can’t break out against resistance at its 200-day moving average, while finding no support at the 50-day moving average either.
Stocks to Sell — Avon Products, Inc. (AVP)
Click to Enlarge Avon Products, Inc. (AVP) had a miserable 2014 — AVP is off 46% so far this year — but it does have a history of strong December gains. Thanks to the holidays, AVP stock is usually good for nearly 2% in the final month of the year.
Well, that’s unlikely to happen again this year. AVP is off about 5% in December so far and AVP stock won’t be a bounce- or bargain-buy in January either. That’s when seasonal weakness abounds.
Besides, in addition to a history of losing 1.5% in the first month of the year, AVP is suffocating under key technicals levels. The 200-day moving average is in a long-term downtrend. That’s a sign of a sick stock.
Furthermore, despite a few head-fakes, AVP has been stuck below its 50-day moving average for 18 months.
Stocks to Sell — Garmin Ltd. (GRMN)
Click to Enlarge Garmin Ltd. (GRMN) has done an admirable job shifting its focus away from consumer gadgets to the auto, marine and aviation industries, but it still does enough retail business to catch a post-holiday hangover.
On a seasonal basis, GRMN crushes the market in December with a 7.5% gain, and then turns into a stinker when it kicks off a new year. Historically, GRMN loses an average of more than 6% in January.
If that volatility and poor seasonality isn’t enough to make this one of our stocks to sell for January, the GRMN chart sure is. Shares recently plunged below both their 50-day and 200-day moving averages.
The move below the 200-day is especially worrisome, given that GRMN stock appeared to have found support there after carving out a death cross in October.
Stocks to Sell — Yum! Brands, Inc. (YUM)
Click to EnlargeBetween another food scandal in China and the emergence of supposedly healthier, fast-casual food chains, it was not a great year for the really big fast-food stocks such as Yum! Brands. Inc. (YUM).
Unfortunately for anyone holding shares in the owner of Pizza Hut, KFC and Taco Bell, seasonality and weak technicals suggest more downside in January.
The Chinese food scandal clobbered YUM over the summer and the stock has struggled ever since. Not only is it down nearly 4% for the year-to-date, but it’s well below its 200-day moving average and keeps bumping up against resistance at its 50-day.
As for seasonality, business always falls off at restaurants once the holidays are over, and the market knows it. Over the last 10 years, YUM stock has lost an average of 2.5% in January.
Stocks to Sell — Windstream Holdings, Inc. (WIN)
Click to EnlargeIf Windstream Holdings, Inc. (WIN) is known for anything, it’s that this regional telecommunications company offers epic dividends. Indeed, with a yield of 10.9%, WIN is among the top-paying dividend stocks in the S&P 500.
More recently, WIN got attention for putting up some big gains earlier this year, but after peaking out in July, WIN has entered a period of technical pain. Shares are down nearly 25% since their summer high and have dropped decisively below their 50-day and 200-day moving averages.
Even worse, WIN hit a death cross about a week ago. As for seasonality, WIN has a poor track record, logging an average loss of 1.3% in January.
It was fun while it lasted, but you’ve got to add WIN to any list of stocks to sell for January.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
