Sell in May and go away is a myth with little basis in fact. June and July are actually very good months for market performance.
May, however, is historically a bad month for equities, which means tactical investors have to look for stocks to sell from their portfolios.
The upcoming month loses an average of 0.1% over the long term, according to Yardeni Research. Only September’s 1.1% decline is worse.
No, an average built on decades of data doesn’t mean May absolutely has to be disappointing. Think of it as taking an umbrella when it looks ominous out. As the saying goes: Take care of the downside, and the upside will take care of itself.
Short-term stock price movements are notoriously hard to pin down, especially with any kind of consistency. However, there are tool that tilt the odds in your favor. If a stock has weak technicals or a history of unfavorable seasonality, they’re more likely to continue to decline.
With that in mind, we’ve screened the S&P 500 for stocks to sell by looking for technical red flags and poor seasonality. Add in some fundamental headwinds and these companies look bound for a bad May.
Stocks to Sell: Apple Inc. (AAPL)
Click to Enlarge That Apple (AAPL) earnings report sure was a stinker. For the first time since 2003, Apple saw its revenues slip year-over-year. The Street knew sales would be challenged, but they didn’t anticipate it would be blood-bath bad. Making matters worse, activist investor Carl Icahn sold his position in wake of the report.
Farther out, AAPL looks like a bargain buy. The valuation is getting ridiculously cheap. If the next iPhone has mojo, look out.
Apple stock recently broken below the 200-day and is tangling with its 50-day. The RSI is actually oversold; but then again, oversold conditions can surprise you with how long they persist.
If the downtrend causes it to breaks below its 50-DMA, it could get ugly for Apple stock holders.
Stocks to Sell: Kroger Co (KR)
Click to Enlarge Kroger (CO) typically loses 0.1% in May, according to data from Thomson Reuters Stock Reports. It’s not preordained to fall, but let’s say the bias is to the downside. More immediately, the nation’s largest supermarket operator described the sell signal of a death cross.
In hindsight, it looked inevitable. KR stock has been struggling with its 50-DMA all year. Sentiment soured after the company missed Wall Street’s fourth-quarter same-stores outlook and served up a disappointing outlook.
Price deflation looks to be creeping into the industry. If true, investors will be looking for cost cuts rather than strong revenue growth.
Stock to Sell: Microsoft Corporation (MSFT)
Shares of the tech giant crashed through their 50-DMA on the cusp of earnings and continued to plunge to break the 200-DMA in short order.
A strong dollar and the ongoing decline of the PC are two headwinds the company can do nothing about.
Look for Microsoft’s earnings miss, slow revenue growth in all-important cloud services and light revenue forecast to weigh on shares in the immediate future.
Stock to Sell: NetEase Inc (ADR) (NTES)
The Chinese online game company has lost a quarter of its value so far this year, and the technicals have turned as well.
NTES has come up against resistance at its 50-DMA all year. With the exception of an aborted breakout in March, it’s been trapped under the 200-DMA too.
Historically, NTES has an enviable track record in May, gaining an average of 1.6%. This year looks different.
Gross margins are contracting and analysts are concerned the uncertainties of of government regulations, foreign exchange movements and heighten competition.
Stock to Sell: Perrigo Company plc Ordinary Shares (PRGO)
Click to Enlarge Sometimes the best time to buy a stock is after it’s been whacked. Perrigo Company plc (PRGO) does not look to be one of those times. Sure, it could get a dead cat bounce, but tactically it’s in trouble.
That’s because investors are worried about a leadership vacuum after its CEO left for Valeant Pharmaceuticals Intl Inc (VRX) and its technicals are just awful now.
Shares were pecking at the underside of their 50-DMA ever since mid-October’s death cross. Now the crash has put it nowhere in sight. That goes for the 200-DMA. As for seasonality, forget it. PRGO has lost an average of 0.8% over the last 10 years.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.