You don’t hear much about the old “Sell in May, and go away” adage right now, as Wall Street is enthralled by the surge to new highs by big-tech stocks. Amazon.com, Inc. (NASDAQ:AMZN) pushed over the $1,000 a share level on Tuesday. Google parent Alphabet Inc (NASDAQ:GOOG) isn’t far behind. The broader Vanguard Information Technology ETF (NYSE:VGT) continued to inch north to fresh all-time highs.
Yet there is plenty of evidence that a bout of higher volatility and weakness is about to strike.
Stock-market breadth continues to narrow. A growing number of stocks are making new 52-week lows. Political headlines are about to heat up again with President Donald Trump back in the country; already, the president is tweeting at the senate, asking Republicans to nuke the legislative filibuster to pass healthcare and tax reform. And the economic data is disappointing analyst estimates on a scale not seen since 2015.
Seasonality is a headwind as well. The folks behind the Stock Trader’s Almanac note that the CBOE Volatility Index (VIX) typically bottoms between April and July before rebounding higher through “frequently turbulence August and September.” Since 1950, September has been the worst month of the year for stocks while August is the second worst.
June isn’t that great in a post-election year either, though, with the S&P 500 down an average of 0.7% since 1953. At the sector level, financial stocks have lately suffered the worst seasonality in June, closing the month higher just once.
With all that said, here are five stocks to sell in June, or if you don’t hold them, you can consider making profits via bearish options trades or outright shorts.
Stocks to Sell in June: Bank of America (BAC)
Bank of America Corp (NYSE:BAC) reported beats on both the top and bottom lines back on April 18, with earnings of 41 cents per share coming 6 cents ahead of estimates, on a 6.9% rise in revenues.
A lot of good that did.
BAC shares have been struggling below their 50-day moving average and look set once again to test critical support near $22.50. This traces out an epic head-and-shoulders reversal pattern that, on a breakdown, suggests a downside target of $18. That would be worth a 20%-plus decline from current levels.
Bank of America has underperformed the broader financials sector in June 75% of the time, which means the stock faces intense seasonality pressure given the already underwhelming performance of the financials in June.
And worse: BAC has a long time before it can win over investors with its fundamentals, as it doesn’t report earnings until the morning of July 18.
Stocks to Sell in June: General Electric (GE)
General Electric Company (NYSE:GE), one of the stalwarts of the market, has sliced below their October 2016 lows to return to levels not seen in more than a year. Prices are down more than 14% from the high set last December despite reporting better-than-expected results — beating the top- and bottom-line expectations — on April 21.
Maybe that’s because revenues fell 0.7% from last year. Maybe that’s because the stock was downgraded by Deutsche Bank analysts on May 12 on valuation concerns given weak earnings quality and a wide gap between non-cash and cash earnings — something they don’t expect to change until CEO Jeffrey Immelt retires.
General Electric’s next at-bat comes July 21 before the bell, when analysts will want to see earnings of 26 cents per share on revenues of $29.3 billion.
The number to watch in the next month, however, is the 200-week moving average near $26. I expect shares to at least decline to this level, good for a 5% drop — and a break below that would open up a worse can of worms.
Stocks to Sell in June: Wells Fargo (WFC)
Wells Fargo & Co (NYSE:WFC) shares continue to hound investors — a running theme since the mega-bank’s fraudulent-account scandal.
Investors at this point can only look toward earnings reports for any sign of relief. WFC next reports July 14 before the bell, when analysts will want to see $1.02 per share in profits on revenues of $22.3 billion. Wells’ last earnings report was no gem; when it reported Q1 results on April 13, results were mixed with revenues down 0.9% on a drop in mortgage originations — something management warned was set to continue.
Technically speaking, WFC is once again testing major support at its 200-day moving average — the third such test since April. The stock is already down some 12% from its mid-March high as much of the speculative froth bank stocks enjoyed following Election Day — on “Trump-flation” and deregulation hopes — has disappeared.
Watch for a drop to the 200-week moving average near $48, which would be worth a near 8% decline from here.
Stocks to Sell in June: JPMorgan Chase (JPM)
If you haven’t noticed a broader trend yet, the financial sector is home to a number of stocks that could be in for an ugly July.
Similar to some of the other names on this list, JPMorgan Chase & Co. (NYSE:JPM) shares are tracing out a massive, if somewhat lopsided, head-and-shoulders reversal pattern. If violated with a break of its neckline support — again between $82.50 and $85 — it would result in a downside target of around $71, which would be a 17% drop from here.
Again, one of the biggest culprits here is the deflation of President Trump-related optimism. It’s certainly not results. JPM’s first-quarter report back on April 13 featured better-than-expected earnings of $1.65 per share (12 cents ahead of estimates) on a 9% increase in average core loans. Revenues jumped 6.2% from the prior-year period.
JPMorgan’s next report is due out July 14.
Stocks to Sell in June: Goldman Sachs (GS)
Last is yet another financial, this time Goldman Sachs Group Inc (NYSE:GS).
GS stock remains within the confines of a tight three-month-long sideways consolidation pattern, with critical support near its 200-day moving average around $210.
Analysts at RBC Capital Markets downgraded the stock on April 19 in response to earnings, citing weaker trading revenue trends vs. peers. For the first quarter, Goldman reported weaker-than-expected earnings of $5.15 per share on a 26.6% jump in revenues.
The company will next report results on July 18 before the bell. Analysts are looking for earnings of $3.93 per share on revenues of $7.9 billion. Between here and there, a breakdown would trace out a downside target of $170, which would be worth a 20%-plus decline from here.