Five stocks to sell now

 

The market has been stuck in a fairly tight sideways pattern over the last couple of months, as Wall Street continues to consider the impact of a possible interest rate increase, and volatile oil prices on the overall economy.

I expect to see much of the same moving forward, and there is also the impact of the upcoming presidential election to keep in mind. The market has been reacting to moves in the election polls, and that is likely to continue as Trump and Clinton fight it out over the next month. The market tends to react positively when Clinton extends her lead, while pulling back on Trump strength.

Right now Clinton is the clear favorite following the leaked tape of a Trump engaging in a lewd conversation regarding women, but if Trump has proven anything, it is that you can never count him out, and I expect he will fight harder than ever as the election nears.

The Federal Reserve is going to be the real driver of the market in the next few months. The Fed is expected to lift interest rates for just the second time since the financial crisis at some point this year, followed by more increases next year as long as the economy does not start to flash major warning signals.

If and when interest rates rise, the market is likely to run into a little selling pressure, as money flows out of stocks and into more traditional fixed-income assets, but rates will remain low enough that I do not expect to see a major market correction on just one or two increases.

If we do see a little sell off after the Federal Reserve decides to lift rates, I would view that sell off as more of a buying opportunity than a reason to get out of the market, but there are some stocks that I would avoid buying at this time, and would consider selling if they were in my portfolio.

The following stocks are all flashing major sell signals, and I would suggest taking a closer look at each stock if you have positions at this time.

Cardinal Health

Drug wholesaler Cardinal Health (CAH) has been trending lower through 2016, rebounding on a couple occasions, but the overall trend has been to the downside. The stock’s short term 50-day moving average crossed above the long term 200-day moving average in August, which was a bullish move, but things quickly turned against the stock, and the short-term trend has once again crossed below the 200-day average. We can also see in the chart that the current downward trend that began at the start of August is a classic example of each high being lower than the previous high, which is another clear sign of trouble for the stock. Given the recent technical trends, CAH appears too risky to hold at the current time.

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Chart courtesy of www.stockcharts.com

Dollar General

Discount retailer Dollar General (DG) shares have been in free fall over the last month and a half following a disappointing second-quarter report at the end of August. The company missed estimates on both the top and bottom line, and the stock took a nosedive on the results. With the recent selling pressure, the short term moving average recently crossed below the long term average, which is a clear indicator that Wall Street remains bearish on the stock. The stock’s valuation has fallen to a P/E of just 16.1, which would be tempting, but the stock has too much risk at this point, and the company is not scheduled to announce earnings again until December 1, and shares are unlikely to make any rebound ahead of that report. Should the stock’s short term average cross above the long term average, and we see upbeat numbers when the company reports in December, the stock may start to look attractive, but for now there is too much short term bearish to hold shares.

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Chart courtesy of www.stockcharts.com

Michael Kors

Women’s handbag and accessories maker Michael Kors (KORS) has been struggling to grow earnings, and as a result the stock has suffered. Analysts expect the company to grow earnings by a modest 2.9% this year, and then just 5.3% next year. Those growth estimates are not high enough to bring enthusiasm back into the stock, and the company will have to post a string of much better than expected quarterly numbers for the stock to resume an upward trend. We see on the chart that the short term moving average has crossed below the long term average, and with the exception of a quick break out mid-September we see a clear downward trend with each high falling short of hitting the previous high. The technicals have completely broken down for the stock, and the short term outlook is very bearish at this time. There are better values in the sector to consider instead of KORS.

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Chart courtesy of www.stockcharts.com

FirstEnergy

Electric utility company FirstEnergy Corp. (FE) is currently in a strong downward trend, and unfortunately conditions are not favorable for a near term rebound for the stock. Utilities are known for the high dividend yields, but with the Federal Reserve expected to raise rates in the next few months, dividend stocks have started to run into some selling pressure, which could accelerate once rates actually do start to rise. Another problem for FirstEnergy is lackluster earnings growth, and analysts expecting earnings to decline moving forward. Current estimates forecast earnings to fall 6.3% this year, and an additional 1.6% next year, which would keep pressure on the stock moving forward. The short term moving average recently fell below the long term average, and there is little chance of a rebound unless we see some impressive earnings beats in the next few quarters.

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Chart courtesy of www.stockcharts.com

American Express

Credit card provider American Express (AXP) traded in a sideways pattern for the better part of two months, but the stock recently traded below support, and has a way to fall before finding its next support level. You can see on the chat that not only has AXP crossed below support, the stock recently crossed below its long term moving average, which is a major bearish signal. Out of the 23 analysts that cover the stock, only three rate it a “strong buy”, and none give it a “buy” rating. 13 rate the stock a “hold”, while one rates it a “sell” and six rate it a “strong sell”. With such bearish analyst ratings, it will be hard for the stock to make back recent losses barring some huge earnings beats moving forward. Analysts forecast modest 2.4% earnings growth this year, and just 0.5% next year, which will not be enough to drive shares higher if the company only hits the forecast.

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Chart courtesy of www.stockcharts.com

Symbols: AXP CAH DG FE KORS
Michael Fowlkes

Michael Fowlkes

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.

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