BALTIMORE (Stockpickr) -- A modest correction for the last three trading sessions is shaking the weak hands out of stocks this week. Ultimately, that's a good thing for the health of this rally, even if it means that the S&P 500 has a lot further to correct in June.
And it does.
Since November 2012, the S&P 500 index has traded in a very tight uptrend, bouncing between a pair of well-defined trend lines all the way up. That hasn't changed in 2014, despite the definite changeover from the nonstop rally that investors enjoyed last year. But with the S&P sitting toward the top of its channel now, the big index could conceivably correct another 4% from here without even threatening the uptrend that's propelled stocks 40% in the last 19 months.
Remember, though, the indices are "market averages." That means that when the market corrects, some names are set to correct a lot harder than others. A 4% correction in the S&P could translate into a 30% correction in an individual weakening issue. Those are the names to avoid in June -- and a handful of big names look downright toxic this summer.
Just to be clear, the companies I'm talking about today aren't exactly junk. By that, I mean they're not next up in line at bankruptcy court. But that's frankly irrelevant; from a technical analysis standpoint, sellers are shoving around these toxic stocks right now. For that reason, fundamental investors need to decide how long they're willing to take the pain if they want to hold onto these firms in the weeks and months ahead. And for investors looking to buy one of these positions, it makes sense to wait for more favorable technical conditions (and a lower share price) before piling in.
For the unfamiliar, technical analysis is a way for investors to quantify qualitative factors, such as investor psychology, based on a stock's price action and trends. Once the domain of cloistered trading teams on Wall Street, technicals can help top traders make consistently profitable trades and can aid fundamental investors in better planning their stock execution.
So without further ado, let's take a look at five "toxic stocks" you should be unloading.