Just because we’re heading into a strong month for market performance doesn’t mean tactical investors shouldn’t be on the lookout for stocks to sell.
Historically, December is tied with July as the best month for stocks. Since 1928, the S&P 500 has delivered an average price gain of 1.5%. That’s a heck of a way to ring out the year, especially one as good as 2014. No, we’re nowhere near last year’s unusually robust gains, but we’re heading in the final month of the 2014 campaign with the broader market up 11.8%.
Yes, indeed, every is lining up for a great finish to a more-than-solid year.
Of course, if an active investor is going to match — to say nothing of beat — such a performance, he or she needs to pare or jettison stocks that look like they’ll underperform in December. These are the slam-dunk stocks to sell and, fortunately, technical analysis and seasonality metrics help them stand out before they can weigh on results.
From flagging momentum to poor seasonal returns to moving averages flashing death crosses and other worrisome sell signals, the S&P 500 isn’t lacking for stocks to sell for December. We’ve scoured the S&P 500 for stocks flashing bright red warning signs on a technical basis, and here’s what we found:
Stocks to Sell: News Corp (NWSA)
Click to Enlarge News Corp (NMSA) — the print media company left over after Rupert Murdoch split off the more valuable TV and entertainment assets as 21st Century Fox (FOX) — isn’t a dud of a stock in December on an absolute basis, but it is enough of a underperformer that there’s no doubt it makes a list of stocks to sell.
On a long-term basis, NWSA gains an average of just 0.3% in December, according to data from Thomson Reuters Stock Reports. That lags the market’s long-term average, as well as NWSA’s own industry, which has a track record of gaining 5.8% in December.
The technicals are looking ugly too. NWSA is trading significantly below its 50- and 200-day moving averages and far below its 52-week high. That suggest more weakness ahead. Indeed, NWSA’s 50-day crossed its 200-day on the way down a couple of months ago, and unless it can punch through the 50-day — where it consistently finds resistance — that sell signal remains in effect.
Stocks to Sell: Urban Outfitters, Inc. (URBN)
Click to Enlarge There’s a long list of mall-based teen retailers that are having nightmare years, and Urban Outfitters, Inc. (URBN) is firmly among them. Fickle teens, weak fall traffic, price problems or merchandising missteps, URBN is seeing deterioration in its core brand that it’s having a hard time getting under control.
It has all added up to an ugly year for URBN, and there’s more weakness in sight thanks to some ugly technicals and poor seasonality.
Most stocks in the S&P 500 have a track record of putting up good-to-great results in December. Not URBN. Over the last decade, it has lost an average of 1% during the month even as its industry gains 2.5%.
But it’s the technicals that makes the clearest case against URBN. The stock fell through both the 50- and 200-day MAs at the beginning of November. More recently, the 50-day fell through the 200-day — a sell signal known as a death cross. Finally, shares have rallied recently but have come up against resistance at the 50-day. And even if they do break through, there’s little reason to expect it to last long.
Stocks to Sell: Noble Corp plc (NE)
In case you’ve been in a coma, the price of oil has dropped about $30 a barrel this year, so it’s not like the oil majors are rushing to dig new wells. That’s clobbering stocks like NE and there’s no let up insight.
Heck, even in good years, NE isn’t a fan of December. Over the last decade, it’s lost an average of 0.7% in the final month of the year.
More recently, NE stock has a chart that looks like death. Shares are down close to 40% for the year-to-date, for one thing. That lags the broader market by more than 50 painful percentage points. Secondly, there’s no upside momentum to speak of.
The 200-day moving average has been in a downtrend for more than a year now. Every time NE stages a rally, it fizzles out against resistance at the 50-day moving average. And the only reason why it hasn’t scribed a death cross this year is because it carved one out late last year.
Stocks to Sell: QEP Resources Inc (QEP)
Click to Enlarge QEP Resources Inc (QEP) is another oil-and-gas company — in this case one engaged in exploration and production — that’s getting killed along with the rest of the industry amid falling energy prices. Like Noble stock, it has poor seasonality and the technicals scream more weakness ahead.
The most alarming thing about QEP these days is that shares made a death cross about a month ago — a sell signal that has been spot-on and still is in force.
That also throws QEP’s technical levels into obstacles. For most of the year, QEP found support at its 50- and 200-day moving averages, but now that it has broken through both levels and created a death cross, those levels will offer resistance.
Seasonality also makes QEP a stock to sell in December. It’s actually pretty tough to find stocks that have a history of declines in the strongest month of the year, but QEP has managed it. Over the long-term, it has lost an average of 0.9% in December.
Stocks to Sell: Discovery Communications (DISCA)
Click to Enlarge Discovery Communications (DISCA) doesn’t have a bad track record in absolute terms, but it is a December underperformer that puts up losses in January to boot. Furthermore, key technical levels have lined up against shares in this media company.
Over the last 10 years, DISCA has gained an average of 1.1% in December, which isn’t bad — unless you’re trying to beat the broader market. The following month is even worse. In a typical January, DISCA drops 0.8%.
Then there are the warning signs being flashed by some of the most basic technicals. DISCA carved out a death cross in early October. With the exception of a brief sucker’s rally, that sell signal has been borne out.
True, DISCA bounced off a 52-week low in mid-November, but it’s still well below its moving averages. At the same time, the 52-week high is no where in sight. Improving fundamentals like revenue growth and margin expansion might make DISCA a buy at some point in January, but as for 2014, it’s a goner.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.