The market’s technical picture has been transitioning on a day-to-day basis, leaving many investors feeling like they’re always a step behind. Stocks may look cheap here, but many are in danger of further declines.
So we’re publishing a list of stocks that are entering “sell zones.” These are stocks that have broken below their respective technical trensdlines, such as their 50- or 200-day moving average. But there’s something that makes our list different …
Big Drop Ahead
What’s different about the stocks on our list is that their options activity signals more than 5% downside before they hit their next support levels.
Historically, our testing shows that large open interest strike levels (calls and puts) tend to attract the price of the underlying stock, especially after technical support has been broken. What we refer to as peak call and put open interest strikes tends to act as resistance and support (respectively).
This phenomenon is so prevalent that the term “pinning” has been used by many analysts to refer to the fact that a stock tends to cling to large open interest strikes, especially as options expiration approaches.
The following stocks have entered their respective sell zones, indicating the potential for more than 5% downside before hitting each of their targeted support levels.
Stock to Sell #1: Celgene Corp. (CELG)
After a run to its March high of $65, Celgene Corporation (NASDAQ: CELG) has broken into a short-term bearish technical trend as it is trading below its 10-month moving average.
The stock’s chart looked as though it would get some support at $52.50 lately, but our sell zone model indicates that we’re likely to see CELG make a run lower to $47.50, almost 10% lower than the stock close at the beginning of the week.
Learn 7 Ways to Tell a Stock is Headed Down.
Stock to Sell #2: First Solar (FSLR)
With the ongoing tragedy in the Gulf of Mexico, you would think that a stock like First Solar, Inc. (NASDAQ: FSLR) might have some buyers around the desk. But this is not the case, as the solar company is challenging round-numbered support at the $100 mark.
Our model is identifying FSLR’s sell zone as the $100-$90 level, indicating that if the stock dips below $100 over the next few days, we’ll be likely to see a quick 10% drop in FSLR.
Stock to Sell #3: Green Mountain Coffee Roasters (GMCR)
Another stock slipping into its sell zone is Green Mountain Coffee Roasters Inc. (NASDAQ: GMCR). Technical support had been trying to hold at $22.50 for the coffee company, but shares broke below that level during Tuesday’s trading.
As of this week, the sell zone for the stock was identified as $22.50-$20, meaning that a close below $22.50 would indicate that the next stop for GMCR shares would be $20 over the next few weeks, an 11% decline.
Get 10 more stocks to sell now.
Stock to Sell #4: Petrohawk Energy (HK)
Another energy company on the sell zone list is Petrohawk Energy Corporation Co. (NYSE: HK). This stock finds itself at what is likely to be a short-term top just above $20, as the current sell zone is $20-$17.50, which is a 12.5% drop from Monday’s close.
With HK’s 50-day moving average resting just overhead as potential resistance for upward moves, we like the stock as a short candidate with the target of $17.50 over the next few weeks.
