This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Stocks Facing Risk of Sequestration Price Cuts

NEW YORK ( TheStreet) -- Wall Street analysts and buy side strategists continue the mantra that stocks are cheap. It seems like year-end price targets for the S&P 500 are raised almost daily. I disagree! I say that the S&P 500 faces a price sequestration as this index continues to lag my semiannual risky level at 1566.9 and its October 2007 intraday high at 1576.09.

While the S&P 500 lagged its semiannual risky level, the S&P 500 Sector SPDR (SPY) ($154.36) tested its semiannual risky level at $156.59 with a high of $156.80 on March 14. Investors and traders following my buy-and-trade strategies had the option to be short SPY at $156.59. SPY is above my monthly pivot at $153.16, which is the near term downside risk. My annual value level lags at $134.74.

Four Reasons Why Stocks are at Risk of Sequestration:

  1. Stocks have been trading under a ValuEngine Valuation Watch or Warning for several weeks with more that 60% of all stocks overvalued. Today 63.5% of all stocks are overvalued.
  2. Technically, the weekly chart profiles for all major averages show extremely overbought 12x3x3 weekly slow stochastic readings. For the S&P 500 this week's reading is 93.67, well above the 80.00 overbought threshold.
  3. The major averages as a group have entered my zone of semiannual pivots / risky levels. The Dow Industrial Average is above its semiannual pivot at 14,323 with the S&P 500 and Russell 2000 below their semiannual risky levels at 1566.9 and 965.51 respectively.
  4. This month the underpinnings of the market have deteriorated with numerous downgrades to leadership stocks, most notably in the transportation and construction sectors. As I explained in Sell-Rated Stocks a Source Of Funds transports and the homebuilders are a source of funds.
Today the construction sector is 24.4% overvalued and 130 stocks out of the 159 in this sector are rated strong sell or sell according to www.ValuEngine.com. With no buy-rated stocks, I say that the entire construction sector is now a source of funds. Here are three of the downgrades in this sector this morning:

KB Home (KBH - Get Report) ($22.10) reported a loss of 16 cents per share for the quarter ended Feb. 28, which was better than the expected loss of 22 cents per share. The stock popped to a new multi-year high at $22.38 on Thursday versus my weekly pivot at $21.69 and annual risky level at $22.95. This morning the stock has been downgraded to strong sell from sell. KBH has become 40.4% overvalued and is projected to decline by 13.1% over the next 12 months. The stock has an elevated 12-month forward P/E of 76.2 and is trading with a market to book value of 4.5.

The manufacturer and distributor of building materials USG (USG) ($28.94) has been downgraded to sell. My semiannual value level is $25.90 with a monthly risky level at $31.21 versus the Feb. 13 multi-year high at $30.97.

Timber company Weyerhaeuser (WY - Get Report) ($30.75) has been downgraded to sell. My semiannual value level is $24.11 with an annual pivot at $28.69 and monthly risky level at $32.40 versus the Jan 24 multi-year high at $31.73.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
FDX $166.75 0.00%
KBH $15.66 0.00%
ORCL $43.44 0.00%
SPY $208.25 0.00%
WY $33.17 0.00%

Markets

DOW 17,976.31 +263.65 1.49%
S&P 500 2,086.24 +25.22 1.22%
NASDAQ 4,947.4410 +56.2220 1.15%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs