Stocks are heading for one of their worst weeks in while as traders continue to cash out of profitable positions, forcing prices lower. So far, the catalyst for the sell-off has been blamed on uncertainty about whether Congress will be able to move forward with the planned overhaul to our tax codes. From our perspective though, this is more likely a case of getting out while the getting is good.
While there are some stocks that are going to be good “buy the dip” candidates through this patch of market weakness, there are a growing group of stocks that investors should be avoiding, or even shorting. This group has already broken out of its short-term bullish trend and is now threatening to solidify its bearish trend.
This Thursday’s three big stock charts looks at Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), Alliance Data Systems Corporation (NYSE:ADS) and Snap-on Incorporated (NYSE:SNA) as three examples of stocks with growing long-term risks.
Alexion Pharmaceuticals, Inc. (ALXN)
Alexion shares made a run at breaking into a new bull market trend two months ago as the stock broke above its long-term moving averages. That run was short-lived as earnings and other fundamental headwinds have caused ALXN stock to fall back into a technical danger zone.
- Shares of Alexion dropped below $115 on Tuesday after spending two weeks consolidating at this important price chart support. The move is increasing selling pressure on the stock.
- The 50-day moving average for ALXN has now rolled-over into a bearish pattern as the stock declined from its October highs. The last instance of the 50-day rolling over was in March ahead of a move from $120 to $100.
- The Chande Trend Indicator has just gone bearish on Alexion stock, indicating that the momentum and volatility of the stock is fortifying the bearish trend.
Alliance Data Systems Corporation (ADS)
Alliance Data Systems had been one of the leaders in the S&P 500 and other indices for years as the stock doubled from 2013 through 2016. Now, ADS stock is locked in a long-term bearish trend that continues to tease bullish traders to jump in on the dips.
The stock has been very “tradable” on its volatility, but the next move looks to be lower.
- Shares of ADS are trying to find support at their 50-day moving average which is trending in a neutral trend. The stock has a good chance of producing a quick rally to $235 from this support, but the bulls need to maintain a short leash on this position.
- Longer-term, the stock’s 200-day moving average is trending lower and ready to provide resistance for ADS shares. This resistance currently resides at $237.
- Another source of support for ADS shares at this moment is the 20-month moving average. This trendline, which also serves as the line of demarcation between a stock being in a bull or bear market, is at $225. A move back below this price will see an increase in selling pressure.
Snap-on Incorporated (SNA)
Tool maker and consumer discretionary company Snap-on has been locked in a bear market trend since June. After a short rally, SNA stock teased traders with a 10% rally that has shares teetering on the brink of a move back into bull market territory.
That said, a technical squeeze play is building.
- Snap-on shares are feeling the overhead pressure of the 200-day moving average, which is trending lower and currently sitting at $158. The last month’s trading has been affected negatively by this pressure.
- The 50-day moving average for SNA is trending higher and currently resides at $154. We will see the two of these trendlines intersect in the next two weeks, causing a squeeze play in which the volatility of the stock will increase as one of these critical trendlines gives way.
- The risk-reward summation for Snap-on suggests that the pending squeeze play will likely result in a break lower again as volume has been on the decline lately. This indicates that the technical traders have been unwilling to defend the stock and will turn to sellers quickly if the stock is unable to hold its 50-day trendline. Currently, our target for SNA shares sits at $148.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.