The market’s recent rally has some investors dreaming that the bear is starting to lose its grip on stocks … but they might be wrong.
Remember: It is not out of place for strong short-term rallies to occur in the midst of a longer-term bearish trend, which the S&P 500 continues to be locked in for now.
With the potential of another cold snap for stocks growing, we’re checking our model lists for companies that are more at risk of giving back recent their gains.
The following 10 stocks are a sampling of the companies that are in danger of retracing their recent rallies, presenting selling or shorting opportunities. We see at least 10% downside in each of these shaky stocks, with the potential of up to 25% losses in one troubled firm.
Shaky Stocks That Could Fall 10% or More: Twitter Inc (TWTR)
Potential Downside: 18%
Twitter (TWTR) shares have epitomized the “slope of hope” as bullish investors have tried to give the company and its leaders the benefit of every doubt. Despite this, the fundamentals continue to suffer — that includes anemic user growth — and Twitter stock remains in a long-term bearish trend.
Our current technical models are forecasting a return to the $14 level (an 18% decline) as sentiment continues to suggest that the perma-bulls are slowly waking up and selling TWTR.
Shaky Stocks That Could Fall 10% or More: Gap Inc (GPS)
Potential Downside: 15%
Through all of the mediocrity it has been through, Gap (GPS) is sporting a 35% rally from its February lows — and that includes a push higher soon after Morgan Stanley took a bearish stance on the stock.
Despite the price strength, however, the fundamentals are still too questionable to consider Gap stock a “buy.” Technical resistance, fundamental questions (the company posted a decline in monthly sales for February) and lackluster sentiment are the reasons that we thing this overbought stock will retrace back to the $26 level.
That’s good for a decline of roughly 15%.
Shaky Stocks That Could Fall 10% or More: eBay Inc (EBAY)
Potential Downside: 16%
To say that eBay (EBAY) is a shell of its former self would be an overstatement, but things are clearly not the same without PayPal Holdings Inc (PYPL). Online resellers are growing in numbers, pushing eBay into a larger crowd. Ebay stock has been locked in an intermediate-term bearish trend and will soon be considered a long-term bear as it breaks through the $22.50 level.
Our models suggest that the crowd is still migrating away from Ebay, which will increase the selling pressure, lowering our price target to $20.
Shaky Stocks That Could Fall 10% or More: Biogen Inc (BIIB)
Potential Downside: 10%-15%
The Valeant Pharmaceuticals Intl Inc (VRX) hangover continues to affect the rest of the biotech and pharmaceutical names as investors and analysts are now trying to determine if valuations are out of line. Setting this aside, Biogen (BIIB) has been a relative strength laggard within the sector, which is why we’re targeting another 10-15% decline.
The stock is currently resting just above $240, a price not seen since Biogen shares were rallying higher in 2013.
The break of $240 will spark a new round of selling and downgrades (61% of analysts are still bullish on this stock) that will target the $200 price.
Shaky Stocks That Could Fall 10% or More: Monster Beverage Corporation (MNST)
Potential Downside: 12%
Beverage companies in general have maintained relative strength against the market as investors have favored stocks from the consumer staples sector. This hasn’t been the case with Monster Beverage (MNST) stock, though, as shares have lagged the market and its peers.
The catch here is that 82% of the analysts covering the stock still have it ranked a buy, which means we’re more likely to see downgrades, adding more selling pressure.
For now, our models are targeting a retracement to the $120 level.
Shaky Stocks That Could Fall 10% or More: Activision Blizzard, Inc. (ATVI)
Potential Downside: 15%
Video game giant Activision Blizzard (ATVI) was on our bullish lists for all of 2015, but the cards have been reshuffled as the “crowd” has become too bullish on Activision Blizzard stock. As of the end of March, 95% of the analysts covering the stock had it ranked a buy, and short interest was near its lowest readings in the last two years.
We avoid stocks that are overloved by the crowd, and that includes Activision Blizzard stock, which is why our outlook reflects a $28 price target — a 15% decline from current prices.
Shaky Stocks That Could Fall 10% or More: Alliance Data Systems Corporation (ADS)
Potential Downside: 23%
Like Activision Blizzard, Alliance Data Systems (ADS) is another company that was on our bullish lists for the past three years but has switched to bearish. The reason for the change includes a shift in the technical trends and an overly bullish Wall Street crowd.
Analyst recommendations for Alliance Data Systems come out to 88% buys, signaling that we are likely to see downgrades as stock performance continues to lag.
Watch for a break of $200 to lead to a new price target of $160 for ADS shares.
Shaky Stocks That Could Fall 10% or More: Newfield Exploration Co (NFX)
Potential Downside: 18%
The rally in oil prices has lifted all of the boats in the oil production and exploration harbor, which is a concern for when these higher prices begin to ebb.
Newfield Exploration (NFX) stock is roughly 60% higher over the last few weeks, putting it near the top for oversold stocks.
With the stock’s 200-day moving average sitting as resistance at 33.50, we’re likely to see a short-term reversal that will target $28.
Shaky Stocks That Could Fall 10% or More: Lincoln National Corporation (LNC)
Potential Downside: 12%
Financial companies have seen strength on the idea that the Federal Reserve would increase rates through 2014, helping their balance sheets strengthen. Lincoln National (LNC) rallied from $32 to $30 since bottoming in February — a 25% gain.
Our model currently ranks the stock a sell, however, indicating that a retracement to the $36 mark is likely as investors readjust their valuations for a lower-interest-rate environment, which will affect financials like Lincoln National.
Shaky Stocks That Could Fall 10% or More: KeyCorp (KEY)
Potential Downside: 10%
KeyCorp (KEY) has been stuck in a bearish trend over the past year despite the general strength that other regional banks have seen as the Fed marched toward an interest rate hike last year. Recently, Keycorp mustered up a 15% rally from its February lows — a rally that has quickly reversed, with shares now trading near $11.
Unfortunately, the analyst crowd is still relatively bullish on Keycorp stock, which means the current weakness is likely to start pressuring the bulls out of their positions, increasing selling pressure again.
Given this, our current target suggests another 10% decline for KEY.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.