Stocks have been slammed this week as if clobbered with a lead pipe. The dull thud reverberated as investors — who had settled into a comfortable, low-volatility slide all year long — were suddenly jolted.
Sure, individual stocks have been falling, one by one, all year long: Heading into Thursday’s session, less than 50 percent of the stocks in the S&P 500 were even in uptrends. The major averages were held aloft by the fewest number of stocks in 15 years.
But now, these so-called momentum favorites are rolling over for various reasons, from the fear of cord-cutting with Disney (DIS) to a too-honest conference call from Twitter (TWTR) and worries over Chinese sales for Apple (AAPL). The result was that the S&P 500 sliced under its 200-day moving average. It’s now at risk of violating the uptrend that has been in place since 2011 as the index leaves the trading range centered on the 2,100 level.
Bank of America Merrill Lynch recently warned clients that the relationship between high-growth momentum stocks and value stocks had reached the highest since 2000. Market history since 1986 shows that when momentum breaks, these stocks suffer a loss of 25% on average.
Here are five momentum favorites to sell.
Momentum Stocks: Facebook (FB)
Solid earnings and a series of analyst upgrades in late July pushed Facebook (FB) up nearly a third from its May low. But profit taking is setting in now as investors remember that, in the end, the company is a play on ad spending.
With corporate earnings under threat from a slowdown in China, a stronger dollar, and lower energy prices, pressure could continue in the months to come.
Momentum Stocks: Amazon (AMZN)
Late last month, Amazon (AMZN) investors were rallied by a surprise quarterly profit. But shares are dropping to fill the late July earnings gap as negative press builds after The New York Times reported on harsh working conditions.
Competitive pressures are building with rivals like Jet.com at a time when retail sales, on an annual basis, have been tepid.
Momentum Stocks: Netflix (NFLX)
Netflix (NFLX) shares have been benefiting from the buzz surrounding cord-cutting as younger viewers look to binge-watch their favorite shows instead of searching the airwaves and waiting week to week.
But now, for the first time since March, the stock has dropped below its 50-day moving average after the Wall Street Journal reported that some states are considering taxing streaming video services.
Momentum Stocks: Google (GOOGL)
Google (GOOG, GOOGL) shares got a lift from earnings as the company reorganization announcement earlier this month — changing its name to Alphabet, of all things.
With a massive gap to fill, look for traders to push shares down towards the $620 level.
Momentum Stocks: Gilead Sciences (GILD)
Biotechnology stocks have been one of the last bastions of strength in this market as breadth weakened.
Gilead Sciences (GILD) was one of the favorites in the sector, but is now tipping back down towards its 200-day moving average for the first time since May. GILD hasn’t suffered a significant break of this level since 2011.
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.
