4 Blue-Chip Titans in Short-Term Trouble

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The fallout from the recent market selloff — one of the most dramatic, in terms of reversal from a recent high, since the 2007 market peak — continues to echo through the stock market as one-time highfliers are pulled back to earth.

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The potential consequences from Monday’s big scare are becoming clear. Jason Goepfert of Sundial Capital Research noted that the Nasdaq suffered a “shock day” selloff — a three-standard-deviation move coming on the heels of a 52-week high.

Abrupt changes in market direction of this magnitude marked the last two bull market tops in 2000 and 2007, which is a scary precedent.

How bad could things get? History isn’t destiny, but Goepfert calculates that since 1971, the median decline over the next week or so following a shock day was in the 3%-to-5% range.

A number of popular, widely held stocks are rolling over in response. Here are four blue chips to avoid or consider as short plays.

Blue Chips to Avoid or Short: Apple (AAPL)

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Apple (AAPL) stock has been moving lower since late May as sentiment has soured.

The super-hyped Apple Watch launch was bungled, reviews were mixed, and sales estimates are being rapidly cut. Brad Hargreaves at Pacific Crest Securities recently cut his estimates for 2015 Apple Watch sales in the third and fourth fiscal quarters to 10.5 million from 11 million previously. His 2016 estimate was cut to 21 million from 24 million earlier.

“Store visits, Google search volume, third-party data and recent supply checks all suggest demand for Apple Watch has fallen sharply from initial levels,” Hargreaves wrote.

In response, I have recommended the July $125 puts to my Edge Pro subscribers.

Blue Chips to Avoid or Short: Bank of America (BAC)

Blue Chips to Avoid or Short: Bank of America (BAC)
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One of the consequences of renewed concerns about the fate of Greece within the eurozone has been pressure against the financial sector.

This has two causes:

First, there are concerns about financial contagion exposure should a fissure within the euro pull down countries like Italy and Spain. Also, Treasury bonds have benefited from safe haven inflows, pushing down long-term yields and pinching net interest margins.

Watch for BAC to move back toward its 200-day moving average — a 6% move from here.

Blue Chips to Avoid or Short: Citigroup (C)

Blue Chips to Avoid or Short: Citigroup (C)
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The same dynamics that are in play for BAC are in play for C as well.

Stocks rolled over from the highs set on June 23 partially in response to a downgrade from analysts at Deutsche Bank. Catalysts for the move include seasonally weaker fixed-income trading later this year, a slowdown in the company’s cost-cutting efforts and a belief that consensus earnings estimates are too optimistic.

A return to the 200-day moving average would be worth a 4% move from here.

Blue Chips to Avoid or Short: Microsoft (MSFT)

Blue Chips to Avoid or Short: Microsoft (MSFT)
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MSFT has sliced below its 200-day moving average — a level that has provided support to the stock since May, as excitement over the upcoming Windows 10 launch fades a little.

Rumors also are circulating the company is interested in Advanced Micro Devices (AMD) in a possible acquisition deal, which seems like a distraction and a further foray into hardware development.

A return to the January-April low would be worth a 9% move from here.

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers. Clink the links above to sign up.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/07/4-blue-chips-aapl-bac-c-msft/.

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