Stocks are continuing to follow one of two paths as we head into September. On one trail, the number of companies that are pointing towards a lower start to the month is growing as investors brace for a volatile September. On the other, a pointed few are breaking rank and moving higher.
Today, we look at Tesla Motors Inc (NASDAQ:TSLA), Philip Morris International Inc. (NYSE:PM) and The Kroger Co (NYSE:KR), all of which find themselves on our short-term bearish stocks list.
Tesla Motors Inc. (TSLA)
Elan musk tried to pull another rabbit out of his hat earlier this week and it did nothing for the stock. Larger batteries aren’t what investors are really looking for — they want better and faster production as competitors are knocking on the door. Tesla shares are now 4% lower for the week and headed towards more technical selling.
Shares of Tesla have spent almost the entire summer consolidating while drifting lower. Now, the technicals that have provided some support are at risk of giving way to selling — namely, the stock’s 50- and 200-day moving averages, which are both declining. The decline in these trendlines signals likely underperformance from the stock, but a break below them will accelerate the bearish activity.
Momentum has been nonexistant as the MACD indicates almost no preference of directional move over the last two months. This stock is waiting for a huge even to shake things up and move it higher, but it feels like the market has seen all of the tricks up Tesla’s sleeve.
The lifeless chart of Tesla stock is likely to break below the 20- and 50-day moving averages in the next two days, which will get selling volume moving higher, from there it’s a stone’s throw to break the 200-day. The last break of the 200-day resulted in a quick 13% decline. Our charts suggest the damage could be more extensive this time with a potential bottom 15% from current prices.
Philip Morris International Inc. (PM)
The “sin” stocks are supposed to do well in dull markets, especially when they provide a 4% dividend in a low-rate environment. The chart for Philip Morris is suggesting that the crowd is finally moving away from this stock that has been favored for the last few years.
After the lackluster earnings report in July, investors are getting concerned about higher rates and a stronger dollar affecting companies like Philip Morris. The results are that the stock has flat lined as traders are taking profits out on each small move higher.
The sideways action has compressed Philip Morris shares into a low-volatility range that is getting ready to break open. Unfortunately it appears that increase in volatility will give way to lower prices.
The lower forecast is due to weakened technicals. First, the 50-day for Philip Morris has rolled over and is now declining, a bearish technical indication. This trendline is also right above current prices forming resistance. Second, the 20-day moving average, which will not provide much support, is just below current prices. A break below this short-term trendline is going to be the trigger for sellers, pushing the stock towards a technical target of $95.
The Kroger Co (KR)
The Kroger company was the darling of the grocery chains last year as the company had reinvented themselves to be a combination of traditional grocer and health food store, stealing market from Whole Foods Market, Inc. (NASDAQ:WFM) and others.
Momentum on that fundamental change has slowed, doing the same to the Kroger’s stock price. After peaking in December, Kroger shares are now some 20% lower compared to -6% for Whole Foods. The gist of Kroger’s poor performance is that this was a crowded trade that is still seeing the crowd migrate from its shares.
This constant migration means that every time Kroger’s forms a short-term bottom it is met with selling pressure as another round of sellers turn up to lock in their profits (even though they are lower than the last short-term bottom).
Kroger stock is trying to place a short-term bottom at $32 as the stock works off a recent buy signal from its oversold RSI indicator. From our regression analysis of the 2016 trend, this bottom has the potential to reach the $34 level before posting another in a long string of lower highs and lower lows.
Technical sellers will enter the market again at $34 and the next round of selling, which should be magnified by market weakness, is likely to take Kroger stock to the $30 price before hitting reliable support.
As of this writing, the Johnson Research Group did not hold a position in any of the aforementioned securities.
