Even a Bull Market Can's Save These Stocks
Sell in May and go away? It is true that May through November is
historically a weaker period for stocks; however, we are in the
midst of a powerful bull market, and those investors who sell
everything now are likely to miss out on big gains this summer.
Last month just before Easter, the key indices broke their
downtrends - drawn from the highs of February and April - and drove
into major resistance. Despite light volume and narrow breadth, the
Easter rally was followed up by a massive breakout, the bullish
significance of which cannot be overstated.
Most stocks have rallied from their lows, but some have failed
to respond. Those non-performers are stocks you
sell in May.
Stock to Sell #1 - Lexmark International (LXK)
), a printing, imaging and content management solutions
manufacturer, missed its last earnings estimate by a wide margin,
and the stock sliced through its bullish support line on high
Moving Average Convergence/Divergence (MACD)
issued a sell signal as its red (fast) line crossed through the
blue (slow) line. The breakdown has special technical significance
because of the breakaway gap created when it broke from the bullish
support line. Gaps are usually filled unless they occur at an
important reversal area such as a bullish support line. Also note
the serious warning given in December when the stock flashed a
"death cross," which is considered by some analysts to be a warning
that a major trend change is about to occur.
Insiders have been selling LXK, and investors should do the same
or short the stock.
Stock to Sell #2 - P.F. Chang's China Bistro (PFCB)
Restaurant chain operator
P.F. Chang's China Bistro
) has fallen on hard times. After missing Q1 estimates, several
analysts cut the stock's rating, and it plunged through the
neckline of a head-and-shoulders formation. This reversal formation
is the most widely recognized of all technical formations.
The target for the breakdown is calculated by subtracting the
price at the neckline, $44, from the highest price, almost $54,
which is $10. That is subtracted from the neckline price of $44 and
provides a downside target of $34.
Stock to Sell #3 - MBIA Inc. (MBI)
) operates the primary financial guarantee insurance in the United
States. The company's future has been the source of controversy.
Most of the risk is associated with the impact of its exposure to
the mortgage-related structured finance market and concerns over
its capital adequacy.
From the technical analysis perspective, the stock broke through
a major support line early in April, but rallied back, opening an
upside gap. This type of gap is usually filled, especially when
followed by major sell signals like the "death cross" and a sell
from the slow stochastic. The likely downside target is below
Stock to Sell #4 - Marriott International (MAR)
) has struggled in a declining economy. Technically, the stock
broke its bullish support line (red dash) early this year and
rolled into a downturn. In mid-April, the decline triggered a
"death cross" and a sell signal from the slow stochastic. Negative
volume has been building and the recent rally seems to be stalled
at the downtrend line and 50-day moving average. Insiders have
recently been selling shares of MBI. The current price may prove to
be an excellent opportunity to sell the shares of MAR.
Stock to Sell #5 - Raytheon Co. (RTN)
Major aerospace and defense contractor
) is directly impacted by cutbacks in government military and
aerospace spending. Its Q1, the company's earnings fell by 14% and
management lowered its full-year earnings estimates.
Technically, RTN rallied from its August low of just under $43
to $53 before rolling down through its 50-day moving average.
Curiously, the rally rebounded to 61.8%, a
, of the previous decline - a line which turns back many rebounds.
In late March, the 20-day moving average (green line) fell through
the 50-day moving average (blue line) for a short-term sell signal,
and recently the slow stochastic also issued a sell signal. The
weekly charts show that RTN is in a long-term bear market.
Insiders have been selling RTN at a rate of 2-to-1 over the last
three months. If the stock fails to hold at its 200-day moving
average (red line), it will likely fall quickly for a test of the
low at just under $45 in December, and then to $42. In a bull
market, it is not prudent to hold a non-performer like RTN.