As the third quarter of 2018 wrapped up, investors were feeling pretty good. Even though we were going into the sometimes-shaky month of October, stocks were doing fairly well. Not many thought we’d be in store for a massive pullback. Sure, some of these names were already on the list of toxic stocks. But others were doing pretty well but still found their way onto the list this quarter.
Either way, the recent price action is making a lot of investors rethink their investment strategy, wondering if these are really the names they want to be in or if these are stocks to sell. Worries are circulating around Wall Street too, as concerns still linger over the trade situation with China and whether the yield curve will invert. The latter is causing concerns on whether we’re heading for a recession.
Of course, some of these charts feature the broken stocks of broken companies. Others may be broken stocks, but aren’t bad companies. Can we distinguish the two? Of course.
Let’s take a look at these toxic stocks as we head into 2019.
Toxic Stock Charts to Watch: Snap
Snap (NYSE:SNAP) is never a stock I’ve liked very much on the long side. There have been moments where the risk/reward was good, but fundamentally, this one just isn’t working.
Snap has solid revenue growth, but also bleeds too much money. It doesn’t have the earnings or cash flow to support its valuation and its user growth has slowed too much. The exception here is that one good quarter could easily propel the stock 20% or more.
I don’t like that risk if I’m short, particularly here below $7. Still, I just don’t find the stock attractive on the long side.
Snap is down more than 50% so far in 2018 and at some point, it will likely bottom. But where? Breaking down now, Snap is only about 40 cents away from retesting its lows. A third test could lead to a bounce, but below its 21-day moving average and I’m still skeptical. A break below support could send shares reeling.
Now over downtrend resistance is a positive start, but below $6 and this one could still be in trouble. For now, the company is still broken.
Toxic Stock Charts to Watch: General Electric
Another broken company is General Electric (NYSE:GE). GE has been a total train wreck and the pain may not be over yet. GE stock has all but eliminated its dividend, still has cash flow issues and plenty of debt. It’s selling assets and doing its best to turn around the ship, but it will take time.
Two prominent analysts have been right on GE for a long time now, and even these bears didn’t expect a quarter as bad as the one we got in October. They’ve got $5 and $6 price targets on GE now and with this price action, we may just get it.
With Tuesday’s plunge, GE stock closed dead on the lows at $7.28, just two pennies above its $7.26 multi-year low. If it takes out that mark next — which seems likely — a run down into the $6 range is possible.
GE’s in trouble and the charts don’t point to a good setup yet. Here are the catalysts were looking for before going long.
Toxic Stock Charts to Watch: Nvidia
Finally, a great company with a broken stock. Nvidia (NASDAQ:NVDA) has been crushed, and yes, it has some issues with inventory right now. The cryptocurrency binge caused a glut of graphic chip inventory for the company and it could take awhile to work through. Its guidance for next quarter shows as much.
But at a reasonable valuation and plenty of growth, I wouldn’t ignore Nvidia down near these levels. The company is still at the forefront of artificial intelligence and autonomous driving. Its growth in gaming, datacenter and professional visualization remains strong and can carry the load despite these issues.
Nvidia isn’t perfect and we’re seeing that in the charts. In early October, Nvidia was trading north of $290 per share. 35 trading sessions later it was down 50%.
The 21-day moving average has been resistance over the last two months. For any serious rally to start, NVDA needs to clear this mark. The action doesn’t look great, but long-term investors can nibble on the stock near $150 and below.
During the panic, shares were trading in the mid-$130s. Should that panic reignite, it’s possible we retest the 2018 lows. If so, we have to be prepared for a test of $120, a big breakout level from mid-2017 — even though NVDA has come so far since then.
On a continued rally, see how NVDA handles the $190 level.
Toxic Stock Charts to Watch: Micron
Micron (NASDAQ:MU) isn’t a broken company, but historically it has gone through boom/bust phases. However, as demand for technology continues to increase, the demand for DRAM and NAND continues to climb.
This is a good thing for Micron, provided it and its competition do not produce too much of product, causing oversupply and hurting margins. Demand is still high and pricing is too, something we learned from the Cisco Systems (NASDAQ:CSCO) conference call. However, it sounds like Cisco has been buying more than it needs to, knowing that pricing will remain elevated. Does this hurt Micron because Cisco pulled forward demand (sort of like how crypto gave a false sense of demand for Nvidia) or does this bode well for MU stock with pricing remaining elevated?
It’s not clear at this point. What is clear is this chart, which is downright hideous even though shares of Micron trade at 3.6 times this year’s earnings — yes, 3.6 times!
So far, the 50-day moving average is doing what everyone has expected, acting as resistance. This has been the case since July. After Tuesday’s drop, shares are back below downtrend resistance, which puts another test of $34 back on the table.
Above the 50-day and there’s room to rally up to $46.
Toxic Stock Charts to Watch: Wynn
At their lows earlier this month, shares of Wynn Resorts (NYSE:WYNN) were down more than 50% from its highs. However, a recent rally has helped erase some of those losses. That’s as Macau is doing better than expected, helping to improve investor sentiment.
For the first time since May, Wynn stock was able to get back above its 50-day moving average. Of course, that was short lived as the stock fell back below this mark on Tuesday’s decline. It would be great for bulls if Wynn stock is able to stay above uptrend support (blue line). Further, it would be encouraging for Wynn to stay over downtrend resistance.
If the bulls can gain some real momentum, an eventual return to the $155 level could be in the cards down the road, provided the 100-day and 200-day moving average don’t provide too much trouble.
On the downside, bears want to see uptrend support give way, as well as prior downtrend resistance. Below these levels could put the October lows back on the table. If the recession talks gain steam, it could weigh on Wynn.
Toxic Stock Charts to Watch: Activision Blizzard
Considering how strong video game sales have been and how much consumers are spending this holiday season, it seems shocking that investors are betting so aggressively against video game stocks. It’s not just Activision Blizzard (NASDAQ:ATVI) either, with Electronic Arts (NASDAQ:EA) and Take-Two Interactive (NASDAQ:TTWO) under pressure too.
Admittedly, things aren’t going perfect for ATVI, but a 45% beating in nine weeks? That seems excessive given how well the industry is doing overall. I personally like TTWO more, but long-term investors are finding value in ATVI.
So far, we’re not seeing much bottoming action on the charts. Shares are still trading near the lows, opening up the possibility that it will flush down to $44, a level of support that goes back to February 2017.
Should it fail, look for a gap fill back down to the $39 to $40 level. Bulls need to see some constructive actions higher before we get too encouraged on the long side. ATVI at least needs to get over the 21-day moving average and eventually downtrend resistance.
While the bullish action has been completely absent over the last two months, the beatdown is extreme. So even though a bottom may not in yet, long-term buyers may find comfort in adding to their position.
Toxic Stock Charts to Watch: Facebook
Last but not least is Facebook (NASDAQ:FB). Shares of the social media giant have been crushed this year, falling almost 40% from its highs made in July.
Facebook has been and continues to be assaulted by wave after wave of negative press. When it will stop, I have no idea. There are concerns over users migrating away from the Facebook platform, as angry users shift to other social media outlets. If Facebook didn’t own Instagram, I can’t imagine the world of hurt its stock would be in.
At the end of the day, Facebook is still wildly profitable and a premiere online advertising platform. Until that changes, its business will be okay even though growth expectations have been greatly reduced for 2019.
On the chart, Facebook stock remains locked in a terrible downtrend. Rejecting off that mark (blue line) this week confirms it’s still trapped. We now have to see where support comes into play. If it retest its lows near $125, will they hold?
If so, we have to wonder if FB is starting to bottom and can push through downtrend resistance. If not, we have to wonder if $115 is on deck. For now, we prefer Twitter (NYSE:TWTR) to Facebook because of the technical setup.