Stocks opened the new year on a strong note, but much of that was due to the big headline of the month, the avoidance of the fiscal cliff, along with new pension money that always supports the market at the beginning of the year. However, technically, it was a great week for stocks with two days of back-to-back 10-to-1 up volume days. According to Lowry Research, the last time we saw that was in January 1987, and it led to a 24.5% run to a peak in early April.
But can this explosion of buying be sustained? Longer term, absolutely, since Congress and the Fed have the ability to keep shoveling money into the system and Q4 earnings are expected to be strong. However, the near term is questionable since Thursday’s and Friday’s volume shrank to the average volume of last year and RSI non-confirmations exist on the Russell 2000 and S&P 500. This condition may be telling us that last week’s gap was an “exhaustion gap” and that stocks could be at risk of a shallow sell-off and a close or partial close of open gaps.
With that in mind, keep an eye on the support areas of each chart — if penetrated they represent selling triggers. But be careful out there. This is still a highly volatile market that is unduly influenced by daily headlines. Short sellers should always use stop-loss orders.
Here is our list of stocks to sell in January:
Stock to Sell #1 – Barnes & Noble (BKS)
Barnes & Noble (NYSE:BKS), the largest bookstore operator in the United States, has over 700 stores. It is under extreme pressure from competitive e-book sales and diminishing profits from its own e-book margins. Despite an attempt to gain market share in that sector, it has been under mounting pressure from other sellers, especially Amazon.com’s (NASDAQ:AMZN) Kindle.
Its return on invested capital (ROIC) was -3.2% in fiscal year (FY) 2012, its lowest in 10 years. Earnings for FY 2013, ended in April, are expected to be -$0.99 versus -$1.41 in FY 2012. Consensus estimates for FY 2014 are -$0.81.
After a nine-month consolidation, the stock broke an important support line at $14, and so it is likely to test the September low at $11.17. The MACD is on a sell signal and volume has been negative for most of December.
Sell BKS if you own it. Short sellers could see a quick trade to $11 or lower. As with all short sales, check with your broker for any margin requirements and the ability to borrow the stock, and enter a stop-loss order to protect against potentially unlimited losses.
Stock to Sell #2 – Check Point Software Technologies (CHKP)
Check Point Software Technologies (NYSE:CHKP), a provider of network security products, is having only moderate growth in its core business. A weaker-than-expected global growth picture and increased competition are also hurting results. Several analysts have noted CHKP’s slow growth and recently cut their estimates.
The stock failed to break through its 200-day moving average, selling is picking up, and the MACD flashed a sell signal in the first week of January. A failure to hold at its 50-day moving average at $45.70 could lead to a quick test of the saucer with support at $43 and then a run against its low at under $41.
Stock to Sell #3 – Chipotle Mexican Grill (CMG)
Chipotle Mexican Grill (NYSE:CMG), an operator of casual Mexican fast-food restaurants, has over 1,300 locations in the United States and Canada. Same-store sales growth is projected to be 2% in 2013, compared with 6.5% in 2012.
In July, the stock broke down plowing through its 200-day moving average on a breakaway gap. In October, the stock broke through a quadruple-bottom at $280 on a huge continuation gap and again with high volume. The stock is in a bear market with immediate resistance at just over $300, where it closed on Jan. 4. Sell CMG at the market or short it with a trading objective of $240.
Stock to Sell #4 – J.C. Penney Co. (JCP)
J.C. Penney Co. (NYSE:JCP) is the leading mall-based family department store operator in the United States with over 1,100 retail locations and online sales. But earnings have been slipping despite management’s introduction of “Fair and Square” pricing where prices have been lowered by about 40% and promotions have been cut. Analysts recently lowered earnings estimates to -$1.15 for FY 2013, ended Jan. 31, and $0.09 in FY 2014.
The stock has been in a bear market since its high in February at over $41. Rally attempts in September and October failed when the stock turned down from its 200-day moving average. Although the MACD has turned slightly positive, price action is poor as it struggles at the 50-day moving average. The next support is at a flimsy support line at $19. After that its November low at $15.69 is the next target. Investors and speculators alike should sell JCP at the market.
Stock to Sell #5 – LG Display Co. (LPL)
Korea-based LG Display Co. (NYSE:LPL) makes thin-film transistor LCD panels, which are used in TVs, laptops and desktop monitors. LG recently committed to a huge expansion in an attempt to gain market share from Samsung, Sony (NYSE:SNE) and other Japanese manufacturers. But there are indications that the TV market is saturated and growth in other areas, like cell phone displays, carries a lower profit margin.
The stock broke its major uptrend line in December, gapping from $14.50 to $13.50, then recovered only to gap down again from the recently penetrated uptrend line and 20-day moving average. The next support is at the December low of $13.57 and then the October low at $11.78, which is the short-term short sale trading target.
Stock to Sell #6 – VeriSign (VRSN)
VeriSign (NASDAQ:VRSN) is a leading provider of Internet domain name registration. Analysts are concerned about greater government oversight and unexpected weakness in its core business.
The stock has fallen sharply from its October high at over $50, crashing through its major bullish support line and 200-day moving average on a breakaway gap. A subsequent rally failed to close the gap, and it opened a continuation gap in late November. That gap was closed in a recent rally to just over its 50-day moving average at about $40. The MACD is now overbought and the recent rally will likely fail.
The downside target for VRSN is in the low $30s. It should be sold by investors and traders alike.