When the market took a beating recently, some stocks managed to avoid the selling pressure, and those are the ones that investors should be keeping their eye on right now.
Normally, a break below a stock’s 50-day moving average is a sign that the intermediate-term strength of the stock is breaking down and flashing a potential shorting opportunity. As of Friday, 4,795 companies in our database were trading below their respective 50-day moving averages, about 65% of our universe. Forty-five of these stocks were new to this category on Friday, meaning that, until then, they had avoided the brunt of the market’s selling pressure. It also means that these companies are likely to accelerate their downward move when the market heads south again.
Let’s take a closer look at four of these companies, as they are providing short-term sell signals, or put buying opportunities for those investors that are using options to profit from the market’s volatility.
Stock to Sell #1: Merck (MRK)
For some time, Merck & Co., Inc. (NYSE: MRK) and other pharmaceutical companies benefitted from strong technical activity.
Now, the pharma giant is falling into the same selling pattern that the market has endured for the last month, resulting in a break below its 50-day moving average, currently residing at $34.22.
The break is likely the first step toward MRK retracing back to its 2010 lows around $32, a 6.5% move from Friday’s close.
Stock to Sell #2: Ball Corp. (NYSE: BLL)
Ball Corporation (NYSE: BLL) makes everything from glass and consumer containers to satellite components, but their stock is falling from the sky a bit lately. After peaking at $55 a few weeks ago, BLL has traded roughly 6% lower and is looking like a good short-term bearish candidate for a move to $46.80.
In addition to the stock’s technical breakdown, investor sentiment has been optimistic. This means that there is the potential for a chain reaction crowded trade sell. With earnings almost a month away (July 29), there is little fundamental news to provide a lift to the shares.
We would be interested in the stock as buyers around $47, but sellers in its current technical state.
Stock to Sell #3: Verifone Systems (PAY)
Verifone Systems, Inc. (NYSE: PAY) offers and maintains electronic payment solutions for consumers and financial institutions. The stock has hung in there as investors have been patient to see some persistence in consumer spending, but there are three things bothering us about the stock today.
First, the new sets of rules focusing on consumer rights with respect to credit and debit cards. While the changes may be good for consumers, they could result in new minimums on charge amounts, which means fewer charges, which is not good for those in this business. Second, the potential double-dip for the economy means additional pressure on retail businesses, Verifone’s customer base. Third is the fact that the stock crossed below its 50-day moving average Friday.
Look for the stock to move another 5%-7% lower over the near-term.
Stock to Sell #4: Netflix (NFLX)
Netflix, Inc. (NASDAQ: NFLX) has forged to new highs over the last few months as the company has expanded its online movie rental business. Now you can rent movies using your Nintendo Wii, as well as directly through some Internet capable televisions.
While the fundamental story has been good for NFLX, the fact is that investors love the thought of closing out a stock position at or near its highs. NFLX shares have fallen about 15% since their June highs, but it appears that the shares are still likely to break below $100 before they become a technical “buy.”
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