The market is teetering as it walks a line near its all-time highs. This appears to be setting up an opportunity for the historically volatile month of September to reset prices with a long-awaited correction.
That correction could come sooner than expected for the broader market, which faces near-term pressure ahead of the Federal Reserve’s annual meeting in Jackson Hole, Wyoming.
The Dow Jones Industrial Average and S&P 500 Index have dropped in anticipation, and the stocks on this list are mired in even more dire technical situations that could be triggered at the drop of a hat.
From our perspective, the list of stocks that investors should avoid is getting longer. But keep these seven stocks in particular in the back of your mind. Because when the market starts to get shaky, if you own them, you’ll want to dump them — no matter what analysts are recommending.
Stocks to Sell: American Airlines (AAL)
Click to Enlarge Transportation stocks took off out of the gate earlier in the year as they led the market higher through April.
Then leadership dwindled and airline stocks have been in a holding pattern (pun intended) ever since. Now, American Airlines Group Inc (NASDAQ:AAL) is facing an overbought situation with resistance lurking overhead.
Seasonality typically turns on airline stocks after the summer season, adding some fundamental pressure to the picture. From our behavioral valuation model’s perspective, the stock is also at risk of seeing some selling pressure as the sentiment picture reveals some signs of a crowded trade.
American Airlines continues to test the $36 level. A break below this level is set to take the carrier more than 10% lower before hitting its first sign of real technical support. Investors that piled into AAL on its strength in the first quarter will also begin to lock in profits, pushing the stock toward what could be its actual bottom at $30.
Stocks to Sell: United Continental Holdings (UAL)
Click to Enlarge Not surprisingly, United Continental Holdings (NYSE:UAL) finds itself in a similar position as American. United shares are trading 26% higher than their July lows, showing the breakneck speed of the recent rally. That means UAL stock is ripe for profit-taking as it becomes overbought from a near-term perspective.
The UAL stock chart reveals a continued bearish pattern for United Airline stock, as the 200-day moving average remains in a descending pattern. In addition, the stock has been following a pattern of lower highs and lows since March.
Looking out further, shares of UAL are trading well below their 20-month MA, placing them in a technical bear market. Despite the long-term bear trend, 65% of Wall Street analysts still recommend buying United! Take it as a sign that we are still likely to see selling pressure as analysts issue downgrades.
Our models are targeting a move back to the $40 level for UAL shares as the market runs into its seasonal turbulence.
Stocks to Sell: Synchrony Financial (SYF)
Click to Enlarge Financial stocks have played catch-up with the markets as we continue to wait on Janet Yellen’s much-hyped rate hike. Synchrony Financial (NYSE:SYF) has lagged the group heavily, as the future of consumer debt and spending is murkier than an Olympic swimming pool in Rio.
The financial company has seen a poor performance in its technical charts as a pattern of lower highs and lows has now extended itself from July 2015 to current date. This trend has the 50- and 200-day moving averages locked in a strong downtrend that is targeting another move lower.
Despite the lackluster (no, just poor) price pattern, sentiment on SFY stock remains positive. A whopping 83% of Wall Street analysts recommend buying! Further, short interest remains relatively low. These are the signs of a crowded trade in danger of a tipping point.
Our behavioral model continues to rank SYF stock a “sell” with a price target of $24.
Stocks to Sell: Salesforce (CRM)
Click to Enlarge Salesforce.com, inc. (NYSE:CRM) may be one of the better CRM systems out there, but the space is still heating up with competition and it is showing in our price targets for the company.
CRM stock is trading 35% higher than its February bottom, but only 5% higher from the pullback in June. That means the technical tide could soon turn for Salesforce stock.
Recently, the 20-day moving average for Salesforce shares crossed below their 50-day trendline. At the same time, the 50-day has transitioned into an intermediate-term bearish pattern by rolling over into a descending pattern. Our historical tests show that this usually results in a 7% to 12% decline in the stock over a two-month period.
The technical turnaround puts pressure on a crowd-favorite stock. Currently, 93% of the analysts covering CRM shares have ranked it as a “buy,” making it one of the most loved stocks in the S&P 500. This indicates potential for a large swath of bulls to turn into sellers as CRM stock dives with the rest of the market.
As of now, our models are targeting a 10% to 15% pullback in Salesforce shares that would have them trading near the $68 level which is where some technical and chart support lies.
Stocks to Sell: HCA Holdings Inc (HCA)
Click to Enlarge Healthcare stocks have been back on the bulls lists given the drop in political rhetoric and regulatory fears. HCA Holdings Inc (NYSE:HCA) hasn’t reacted to the rally in the sector though as HCA stock remains marred in a lackluster trading range testing key must-win support.
Overhead pressure from the 20- and 50-day moving averages loom for HCA, while descending trendlines are indicative of continued weakness. This pressure is now forcing HCA stock against its 200-day trendline, which is trying to hold support at $74. A break of support here will trigger a technical selling spree that will force shares lower.
HCA is another stock in the S&P 500 that presents itself as a crowded trade with 80% of the analysts tracking it holding a “buy” recommendation. This is a concern, as the lack of relative strength, or Alpha, should result in some downgrades on the stock adding more selling pressure to the equation.
In addition to all of this, HCA shares are in the process of posting their first close below their 20-month moving average since March. This will put the stock back in bear market territory and level even more selling pressure on the shares.
Our model’s current price target is $60.
Stocks to Sell: Noble Energy (NBL)
Click to Enlarge Everyone is hopping back on the energy bandwagon again as oil prices rally. You wouldn’t know it from the price of Noble Energy, Inc. (NYSE:NBL), though: NBL stock is barely holding on to short-term support to avoid a selloff.
Shares of the oil and gas company continue listing lower, and the lack of strength has resulted in a bearish cross-under of the 20- and 50-day moving average, putting the bulls on alert. In addition, the 50-day moving average has been reduced to a descending pattern which is almost always indicative of continued weakness.
The sentiment picture for Noble Energy is not as optimistic as the other stocks on our list, as only 58% of the analysts covering the stock have it ranked a “buy” and short interest is in the middle of its recent range. Fundamentally, NBL stock managed a small surprise in its latest earnings report, but offered no guidance, something that is becoming prerequisite for strength in the energy sector.
The technical traders are in charge of Noble Energy’s destiny, and those indicators (along with our model) suggest that NBL stock is likely to see a 10% to 14% decline heading toward longer-term support at the $32 price level.
Stocks to Sell: Starbucks (SBUX)
Click to Enlarge The coffee scene is once again pressuring the 800-pound gorilla in the group, Starbucks Corporation (NASDAQ:SBUX). SBUX continues to go through a number of changes in its retail stores, but has failed to grasp the attention of investors as share prices are locked in an intermediate-term bearish pattern.
Recently, Starbucks stock unsuccessfully tested its 200-day moving average, which has set itself into a descending pattern. At $58, this trendline is providing an obstacle for higher prices. Just below at $56.40 is Starbucks’ 50-day moving average, which hasn’t been performing well as support.
Finally, from a shorter-term perspective, Starbuck’s 20-day moving average just crossed below its 50-day, a bearish indicator for the next month for Starbucks shares.
Another of the anointed stocks by the Wall Street analysts, Starbucks holds a “buy” recommendation from 83% of those covering the stock. So, 83% of these analysts recommend a stock that is 4% lower on a year-to-date basis while the S&P 500 (their benchmark) is up by almost 7%. Hmm …
Starbucks stock bounced off of its 20-month moving average earlier this month. That’s the line in the sand between long-term bull and bear market for the stock. Right now, our models are forecasting that the stock will move into bear market territory toward a price target of $50.
As of this writing, the Johnson Research Group did not hold a position in any of the aforementioned securities.