5 Stocks to Sell Into the Next Rally

By Sam Collins,

Shutterstock photo

Ditch These Dogs as Soon as You Can

Investors have been taken on a hellish ride over the past few trading days, and this massive volatility is likely to continue in the near term. Emotional global sell-offs seem to be the norm this week, and investors are wondering when we'll find a bottom. As a friend once said to me, "A low is defined by price. A bottom is defined by time and price."

This week's lows will be tested, and only time will tell if they hold, because there is much technical damage to overcome. In such an environment, constructing a list of stocks to sell is tricky in that the market is very oversold, and the Fed and the government are pressured to prop up the markets. If that were to occur, a rebound could result in a rally. And that's when you should take the opportunity to sell or short your weakest holdings. My advice: Sell into strength while avoiding market orders.

Here is our list of stocks to sell for August:

Stock to Sell #1 - General Dynamics

General Dynamics (NYSE: GD ) is the world's fifth largest military contractor and one of the world's biggest makers of corporate jets. The government has made it clear that it intends to initiate broad cuts in defense and aerospace systems, which are at the heart of GD's revenue growth.

Technically the stock is in a sharp downtrend that followed the crossing of its 50-day moving average (blue line) through its 200-day moving average (red line) in late July. By breaking the support (red dash line) of a bearish channel it went into a free fall. In other words, technically it is difficult to find an area of support that in the near term is likely to stop the decline. The initial target for short sales is $55, but longer term this stock appears to be headed even lower.


See chart key

Stock to Sell #2 - BP

Even before the current sell-off, international oil and gas company BP PLC (NYSE: BP ) had "a high-risk profile," according to Standard & Poor's.

Following the disastrous Gulf of Mexico spill, the stock recovered from its low under $27 and rose to over $49. But it came into contact with its long-term bear market resistance line in April, quickly turned away from it, and began a bearish channel down. BP broke the support line of the channel in early August, and executed a strong sell signal from our internal Collins-Bollinger Reversal (CBR) indicator.

A team of research analysts downgraded the stock on Aug. 8. If you own BP stock, sell it, preferably into a relief rally. The stock is also a strong candidate for short sales with a downside target of $34.


See chart key

Stock to Sell #3 - Staples

International office products company Staples Inc, (NASDAQ: SPLS ) is suffering from talk of a "double-dip recession." S&P cut its rating on the retail sector and Goldman Sachs (NYSE: GS ) cut its rating on competitor OfficeMax (NYSE: OMX ), which had a negative impact on the price of SPLS stock.

Technically SPLS suffered a huge breakaway gap in May, followed by an unsuccessful attempt to consolidate, which lasted for two months. Last week, sellers drove the stock through the zone's support line at $15, initiating a new leg down.

The stock is in a free fall, and thus no technical target is possible, but in 2002, a reversal up occurred at about $10.


See chart key

Stock to Sell #4 - Sony

Japan-based Sony Corp. (NYSE: SNE ) manufactures a strong line of electronic products and is a leader in the retail electronics area. But Sony suffered delays of parts supplies due to the tsunami and now is confronted with the strong possibility of a global economic slowdown, which could have direct impact on its consumer products areas.

Following the downgrading of its stock by a team of analysts, SNE broke down from a double-bottom and an attempt to consolidate at $24 to $27. Its trading target is $18. Long-term holders of SNE should protect their position by buying put options.


See chart key

Stock to Sell #5 - Taiwan Semiconductor Manufacturing

Taiwan Semiconductor Manufacturing Co. (NYSE: TSM ) is the world's largest dedicated semiconductor foundry, but with an economic slowdown likely worldwide, demand for semiconductors is expected to decline. Therefore, in early August this highly cyclical company had its rating reduced by several analysts.

The rating cuts drove TSM down through a crucial support line at $12 and confirmed a breakdown from a double-top at $14. The target for the breakdown is $9 to $10.

NYSE:TSM chart

See chart key

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing Stocks
Referenced Stocks: CBR , GD

More from Sam Collins


Sam Collins

Sam Collins

Find a Credit Card

Select a credit card product by:
Select an offer:
Data Provided by BankRate.com