U.S. equities continue to linger just below the Dow Jones Industrial Average’s 20,000 level, forming a dangerous “island gap” formation after a short-lived breakout last week. Why does that matter?
It suggests buyers are downright exhausted.
Combined with extreme sentiment measures and a cavalcade of overbought technical indicators, and it’s looking like a classic reversal pattern is in play.
Investors seem to be spooked by a change in the way Wall Street is viewing the new Trump Administration. At first, there was much hope and excitement surrounding his fiscal stimulus and deregulation plans. But now, there is a creeping fear that his aggressive trade stance, nationalist foreign policy stances, and desire for an immigration clampdown could weigh on corporate profits and destabilize geo-politics.
That — as well as the fact that February tends to be a not-great month for stocks — has investors and traders alike on edge.
In response, here are seven stocks to sell or trade bearishly via options as the calendar flips to February. Long-term buy-and-holders should especially look to merely hedge their positions, but if you were looking for an exit point to take total or even partial profits in any of these stocks, now would be the time.
Stocks to Sell as Fear Returns: Gap (GPS)
Troubled clothier Gap Inc (NYSE:GPS) just can’t shake its two-year funk.
The company continues to suffer from fashion misses and tepid demand at its Gap and high-end Banana Republics marks; only its bargain Old Navy brand is having success. The company reported better-than-expected holiday sales, with comparable-store sales surging 12% year-over-year. The flip side? Investors remain skeptical that the increase was driven easy comps from last year.
The company’s struggles to resonate with customers are so deep, it’s resorting to releasing a reissue of some of its best sellers from the 1990s.
“The ’90s is having a sartorial moment and we have an archive of pieces that set the tone for that decade commercially and culturally,” CMO Craig Brommers said.
GPS is threatening to fall below support going back to September after suffering a 27% decline from the high set in November. The next potential catalyst for the stock will come Feb. 23 after the close, when Gap reports its fourth-quarter results. Analysts are looking for earnings of 45 cents per share on revenues of $4.4 billion.
Stocks to Sell as Fear Returns: Delta (DAL)
Delta Air Lines, Inc. (NYSE:DAL) and the airline industry in general looks set for a bout of weakness. That’s largely because the post-election ramps look vulnerable to a downside reversal amid growing evidence of industry overcapacity leading to profit margin pressure.
On Thursday, the company reported that the important passenger revenue per available seat mile (PRASM) metric declined 2.5% in January vs. last year. The company also is recovering from a system outage in late January that canceled 280 flights over the course of two days.
As a note, that was the company’s second such outage in the past half-year.
Delta’s also coming off a weak earnings report that saw earnings decline 37%, and adjusted profits that merely met Wall Street’s expectations. The company will have a chance to redeem itself on the morning of April 13, when it reports Q1 results. Analysts expect profits of 92 cents per share on revenues of $9.3 billion.
Stocks to Sell as Fear Returns: American Airlines (AAL)
American Airlines Group Inc (NASDAQ:AAL) shares are under pressure, too, and that’s despite a strong performance in its recently reported fourth quarter.
AAL’s Q4 included its first increase in unit revenue since late 2014. Moreover, the company’s adjusted earnings of $1.48 per share blew through expectations of 92 cents, helping overshadow the fact that net income declined by 54%. The company’s new $2 billion stock buyback program was expected to win hearts and support shares, too.
However, all this was marred by management comments that it would shift capacity to the domestic market (again, fueling overcapacity concerns).
AAL shares are falling out of a three-month trading range by losing support near the $46 level. This also takes the stock back below its 50-day moving average.
American Airlines’ Q1 report comes April 21 before the bell. Wall Street is looking for earnings of 68 cents per share on revenues of $9.6 billion.
Stocks to Sell as Fear Returns: Starbucks (SBUX)
Starbucks Corporation (NASDAQ:SBUX) shares are under pressure — all sorts of pressure.
First, there’s the disappointing sales growth last quarter. That came amid the fact that its mobile/app pay initiatives aren’t speeding up service, but in fact are creating servicing bottlenecks in its stores. This is not unlike the service slowdown suffered by McDonald’s Corporation (NYSE:MCD) years ago when it added higher-end items like wraps and smoothies to its menu.
Moreover, CEO and founder Howard Schultz is soon stepping down (again) and seems focused on a possible future in politics for the Democratic party. He pledged to hire 10,000 refugees in response to President Trump’s executive order concerning refugee entrance into the U.S. Amid some blowback, the company is also now hurrying an already-stated plan to hire 10,000 military veterans and spouses. (The original benchmark was 2018.
SBUX will next report results on April 27 after the close. Analysts are looking for earnings of 46 cents per share on revenues of $5.5 billion.
I have recommended the Feb $54 SBUX puts to Edge Pro subscribers.
Stocks to Sell as Fear Returns: Goldman Sachs (GS)
Goldman Sachs Group Inc (NYSE:GS) was one of the leading stocks in the Dow Jones Industrial Average during the post-election ramp to new record highs above the 20,000 level. Ostensibly, this was driven by hopes for deregulation and the net interest margin lift from the “Trump-flation” rise in long-term interest rates.
Then in January, GS easily beat revenue and earnings expectations; revs of $8.17 billion topped the Street’s mark for $7.42 billion, while earnings of $4.88 per share cruised ahead of $3.82 estimates. Goldman Sachs was propped up in large part by a big bump in trading at the end of the year.
But investors, who started to sour on overbought financials a few days before Goldman’s report, also seem to have forgotten the company’s strong quarterly results. Shares are now under pressure, falling below their 50-day moving average as a profit-taking dynamic materializes.
Goldman’s next earnings don’t come until April 18. Analysts are looking for earnings of $4.90 per share on revenues of $8.8 billion.
Stocks to Sell as Fear Returns: Chevron (CVX)
Energy stocks have broadly been under pressure over the last few weeks on bearish crude oil and gasoline inventory data, evidence of a pickup in production activity by U.S. shale producers, and increasing doubts about the viability and enforcement of that much heralded OPEC output freeze agreement.
Chevron Corporation (NYSE:CVX) is in that boat. Moreover, it reported a top- and bottom-line miss last month despite aggressive cost cutting. The culprit: The refining division, which wasn’t able to maintain margins.
Worse, CVX continues to cut, and will spend less on capital expenditures for the fourth straight year.
CVX shares have collapsed out of a two-month topping pattern to drop below their 50-day moving average. The next catalyst (on the schedule, anyway) is Chevron’s Q1 earnings report before April 28’s bell. Analysts are looking for earnings of 95 cents per share on revenues of $38.6 billion.
I have recommended the Feb $110 CVX puts to Edge Pro subscribers.
Stocks to Sell as Fear Returns: Intel (INTC)
Lastly, Intel Corporation (NASDAQ:INTC) shares were hit on reports that Apple Inc. (NASDAQ:AAPL) could be developing a new processor chip for its Mac computer line. That technology reportedly is being built with ARM Holdings technology.
The share price slide also come in the wake of a very strong quarterly earnings report, with both earnings and revenues exceeding estimates. One possible source of concern was cautious comments from management on the health of the PC market.
Either way, INTC shares have fallen to test their 50-day moving average for the first time since early December after forming a double-top pattern with resistance near the $38 level.
Intel’s next earnings report comes April 27 after the bell, and analysts are looking for earnings of 61 cents per share on revenues of $14.5 billion.