The recent rally has some investors dreaming of the fabled Santa Claus rally that could ensue as we head into the final two months of the year.
However, while November and December are historically very kind to investors, there are still some well-known names that fall into our “technical terror” category — meaning they should be sold immediately or avoided in lieu of better opportunities.
Stocks that qualify for the technical terror tag include those that continue to underperform the marketwhile trading in negative patterns below critical long-term trendlines.
As a kicker, we always look for signs that these technical terrors remain loved by Wall Street, as this indicates plenty of room for downgrades, which just add logs to the bearish fire.
Here are three technical terrors you’ll want to bail on as soon as possible:
Technical Terrors: Yahoo! Inc. (YHOO)
Yahoo (YHOO) has been teasing investors for years as the stock has flashed signs of brilliance here and there, only to fall back into an ugly long-term trend. The company has been in the news recently as a result of the first-ever live streaming NFL game — a dud in our opinion.
Yahoo’s earnings report was as clear as mud in terms of where the company is headed. While the company said that it is “pleased with our financial flexibility and strong balance sheet,” it is pretty clear that the cost-cutting will continue as Yahoo tries to figure out exactly what it is.
What is even clearer is the state of technical despair YHOO shares find themselves in. Despite their recent rally, YHOO shares are trading well below their 200-day moving average, which is also the site of the stock’s declining 20-month moving average. The combination of overhead technical pressure will keep YHOO’s rally in-check, meaning we would sell into Yahoo’s recent strength.
Technical Terrors: Whole Foods Market, Inc. (WFM)
Whole Foods (WFM) has been getting some positive media attention for being a great “value” play at its current levels. The stock trades at 15 times earnings, which is cheap, but WFM is going to get even cheaper considering that one of the companies eating Whole Foods’ lunch trades at 18, but with much more striking technicals.
The technical picture for WFM is bad and getting worse. Shares are breaking through the $30 level for the first time since 2011 and our technical targets see another 15-20% of downside before technical buyers are likely to step in.
One of the problems is that Kroger (KR) and other larger chains have nosed into the organic markets with their own brands at cheaper prices and more locations. Kroger shares are trading like a mirror image of WFM as they are breaking to new highs and enjoying a truly friendly trend.
With similar P/E ratios, investors would be wise to dump WFM for a better fundamental and technical value found in KR shares.
Technical Terrors: Tesla Motors Inc (TSLA)
Full disclosure, we think that Tesla (TSLA) products are cool. The problem is that they’re not translating into a profitable investment for now. With the stock down more than 13% over the past year, TSLA shares have slipped into a scary pattern that forecasts more pain for investors holding them.
Recently, TSLA shares have underperformed the S&P 500 and Nasdaq Composite as sellers have pushed the price to a potential technical breaking point at $200. We’ve seen the $200 level hold as round-numbered support for the stock a few times this year, but the current selling pressure is running counter to the market’s trends, telling us that there’s something more going on with TSLA this time around.
Tesla is set to announce their quarterly earnings next Tuesday, after the market close. The last three quarters have seen earnings results that have missed analyst expectations by a widening margin, putting pressure on the company to start generating positive news or run the risk of investors losing faith in this technically weakening stock.
For now, our models are forecasting a 10%-20% decline in shares on anything less than a blowout quarter. For our money, that’s too terrifying to chance.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.