The post-election rally has carried many portfolios into profitability on the back on strong performance for several sectors and stocks. That said, many investors are now waiting for the next shoe to drop.
The broad consensus right now is that the market has extended itself to unsustainable levels. The Nasdaq and Russell 2000 are trading for nearly 19 times next year’s earnings estimates, while the S&P 500 is trading near a forward P/E of 18.
While analysts seem bullish about the many drivers that could push stocks forward, even the best sports cars need fuel to perform. And the market is gassed.
While our general market outlook includes a bullish bias, our technical models are picking up a growing number of stocks that are settling into intermediate-term bearish trends. These stocks make up a growing list of companies that are likely to see things decline in a hurry as we move through the next three months.
In no particular order, here are seven stocks that we see dropping by 10% or more over the next quarter:
Stocks That Will Drop 10%-Plus This Quarter: GoPro (GPRO)
Potential Downside: 17%
Once a darling of the startup world, GoPro Inc (NASDAQ:GPRO) continues to draw attention each earnings season, with many believing the action-camera company will branch into new, innovative technologies. Alas, GoPro has offered very little return on the investment of hope.
Is GoPro worthless as a company? No. But will GPRO trade lower over the next three months? Absolutely.
The latest earnings report offered a reality check after shares had rallied to the $11 mark. Now, after losing more than 10% following the report last week, the downside risk is growing as GPRO shares are resting on technical support.
The $9.50-$9.75 range has long shouldered GoPro, with this range supporting shares twice on a long-term basis in 2016. However, volume is building, and the stock is putting more pressure on the $9.60 mark.
A break of this level would bring in a new round of sellers that would likely target the $8 price — a 17% decline from current prices.
Stocks That Will Drop 10%-Plus This Quarter: Twitter (TWTR)
Potential Downside: 21%
Twitter Inc (NYSE:TWTR) is among the more aggressive picks for stocks ready to decline by double-digits over the next three months.
TWTR shares have been trading flat since its last earnings report, and it heads into this week’s results — Twitter reports Thursday morning — with mixed expectations. Investors continue to watch the social media service for signs that it’s ready to monetize its user base — a task that has long eluded the company. That’s also problematic, given that user growth is somewhere between “snail” and “slug.”
As of now, TWTR stock is trading in technically tepid territory. Twitter currently resides just a bit above the confluence of trendlines that include the 50- and 200-day moving averages. A break below this level — $17.65 — will act as a catalyst for the technical sellers to sell to avoid the next move lower.
The upcoming earnings announcement does have the potential to pop shares higher. But given the long-term trend, traders will quickly turn into sellers or even short sellers of Twitter, pressuring it lower again.
Heading into Thursday’s report, our technical models suggests a price target of $14 on Twitter stock.
Stocks That Will Drop 10%-Plus This Quarter: Macy’s (M)
Potential Downside: 15%
Macy’s Inc (NYSE:M), whose fundamentals are on the decline, finds itself lagging the very industry it led less than two years ago. Nonetheless, shares got a boost on Friday as potential M&A news — Canada’s Hudson’s Bay (OTCMKTS:HBAYF) reportedly is in early talks — moved the stock more than 10% higher.
The move is reversing itself, however, as the market digests the possibility for a deal.
Technically, Macy’s is now challenging the $30 area. Should M shares break below here, that should act as a technical trigger for another large move lower. Also, I’d like to point out that shares aren’t gaining traction at the $32 level — an important Fibonacci support area. This price represents the 61.8% retracement level between the 2009 lows and the 2015 highs.
A deal for Macy’s is the one thing that can get the stock to hold off on yet another round of selling. But at this point, too many traders are taking profits from Friday’s speculation rally.
With little to no short interest to provide potential support, and the analyst community walking away from the stock for the time being, our models target a move to the $27 level.
Stocks That Will Drop 10%-Plus This Quarter: Coca-Cola (KO)
Potential Downside: 13%
Many of the beverage companies have been pressured as they try to adapt to a market that’s changing, and in a hurry.
Shares of The Coca-Cola Co (NYSE:KO) have lagged the market on short- and long-term lookback periods, and the underperformance is growing.
One reason for the shift away from Coca-Cola is the fundamental performance, which is lacking. But the other might be that investors are moving away from consumer staples stocks with merely middling dividend yields amid expectations that interest rates will move higher several times this year. With a yield of 3.4%, Coca-Cola had been more attractive as a dividend stock, even with the fundamental weakness. Now? Not so much.
KO shares currently are challenging the $41 level, which has held as historical chart support, and currently is the site of the 50-day moving average. Shares also are trading below their 20-month MA, identifying Coca-Cola as a technical bear-market stock.
The next move below $40 is likely to turn into a momentum trade that will see sellers take the shares to their next level of support at $36.
Stocks That Will Drop 10%-Plus This Quarter: Alexion Pharmaceuticals (ALXN)
Potential Downside: 14%
Like so many stocks in the pharmaceutical sector, Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) has spent the past 12 months lagging the market because of the uncertainty surrounding regulations within the industry. ALXN has tried to play catch-up over the last few months after hitting long-term support at $110, but things appear to be reversing.
With earnings approaching on Feb. 16, Alexion shares are on the decline and challenging their lifeline of intermediate-term support: the 50-day moving average. This trendline currently sits at $127 and should be considered a line in the sand for traders.
In addition to the potential for ALXN to break below the 50-day, the stock’s 200-day MA is just above current prices at $130 — a level that has seen a lot of price support and resistance according to the historical charts.
Over the past three years, Alexion shares have averaged a loss of 1.3% in the week after earnings. A move like this will break below the support that traders are holding on to, increasing selling pressure.
Wall Street still is relatively bullish on ALXN, with 71% of the analysts covering the stock ranking it a buy. We believe that’s additional risk, as downgrades could knock the stock even lower, adding potential pressure.
As a result, our model targets a move to $110.
Stocks That Will Drop 10%-Plus This Quarter: Express Scripts (ESRX)
Potential Downside: 10%
Another healthcare-related company that is suffering from uncertainty around the regulatory environment is Express Scripts Holding Company (NASDAQ:ESRX). The stock had been a leader in its peer group and the market, but that has changed of late.
ESRX topped out in 2015 and have underperformed ever since, including breaking into a technical bear market in January 2016. A year later, and the stock is set to break into an even deeper level of this trend.
The latest consolidation at $67 represents the third attempt for Express Scripts to hold support going back to 2015. Pressuring this level more than ever are questions on the rebate system that ESRX has in place and whether they are effective in the changing healthcare environment.
A break below $67 will set Express Scripts shares in motion toward a target of $61 per our models.
Stocks That Will Drop 10%-Plus This Quarter: O’Reilly Automotive (ORLY)
Potential Downside: 12%
O’Reilly Automotive Inc (NASDAQ:ORLY) has spent a lot of time as a relative strength leader as the stock outpaced the market on its parabolic climb. Now, however, revenues look like they have topped out, and the stock is starting to lose its luster as a growth opportunity.
Traders have picked up on this, and the intermediate-term trend shows that the crowd is moving away from ORLY.
Analysts remain bullish, with almost three-quarters of those covering ORLY ranking the stock a buy. That’s higher than the market average, which suggests we could see downgrades unless the company provides stellar results.
O’Reilly Automotive just broke into a bear market trend last month when shares closed below their 20-month moving average for the first time since 2008. This is another suggestion that the crowd is starting to migrate from O’Reilly Automotive.
Technicals and sentiment indicators have our models suggesting that a price target of $230 is realistic over the next three months. That decline would amount to a 12% decline in value.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.