5 Toxic Stocks to Sell Now

Here's a technical look at five stocks that you need to unload from your portfolio.
By Jonas Elmerraji ,

Today may be Friday the 13th, and your friggatriskaidekaphobia may be flaring up -- but you're not just being superstitious worrying about your portfolio's well being right now.

That's because, whether you realize it or not, a large number of big stocks are starting to look "toxic" this fall. You might even own some of them.

October's big rally is a great example of that. While the S&P rocketed nearly 10% during the course of October, 68 stocks (almost 14% of the index) actually managed to end last month lower than they started. All it took was owning a few of those blue chip names to dramatically underperform the rest of the market.

The question investors need to ask themselves now is, "which stocks look toxic in the final stretch of the year?"

So today, we're turning to the charts to figure out which big stocks to avoid now -- and what price triggers need to get broken for them to go from red flags to outright toxic trades.

Just to be clear, the companies I'm talking about today are hardly junk. By that, I mean they're not next up in line at bankruptcy court -- and many of them have very strong businesses. But that's frankly irrelevant to what happens to their stocks; 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 on to 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 entry and exit points.

So without further ado, let's take a look at five toxic stocks to sell.

America Movil

Up first on the list is America Movil (AMX) - Get Report , the $53 billion Latin American mobile carrier. This stock has looked pretty toxic to investors' portfolios all year long, shedding more than a quarter of its market value since the calendar flipped to January. The problem now is that shares actually look likely to kick off a second leg lower this fall.

America Movil is currently forming a descending triangle pattern, a bearish price setup that's formed by horizontal support down below shares (down at $16 in this case), and downtrending resistance to the upside. All the while America Movil has been bouncing in between those two technically important price levels, shares have been getting squeezed closer and closer to a breakdown through our $16 support line. If that $16 line in the sand gets busted, look out for additional downside in this stock.

Relative strength, which measures America Movil's price performance versus the broad market, is an extra red flag to watch here. Our relative strength line is holding onto its long-term downtrend, which tells us that this stock continues to underperform the rest of the market in November. If $16 gets busted, then it's time to sell.

China Mobile

We're seeing a similar setup in shares of another big foreign mobile carrier: China Mobile (CHL) - Get Report . Like America Movil, China Mobile is currently forming a descending triangle pattern, in this case with key support down at $57.

Why all of the significance at that $57 level? It all comes down to buyers and sellers. Price patterns, like this descending triangle pattern in China Mobile, are a good quick way to identify what's going on in the price action, but they're not the actual reason a stock is tradable. Instead, the "why" comes down to basic supply and demand for its shares.

The $57 support level is a price where there had been an excess of demand for shares; in other words, it's a spot where buyers were previously been more eager to step in and buy than sellers were to take gains. That's what makes this week's breakdown below $57 so significant -- the move means that sellers are finally strong enough to absorb all of the excess demand at that price level. If $57 gets violated, then China Mobile is likely to kick off another long-term leg lower.

SunEdison

So what exactly happens when a descending triangle -- like in America Movil and China Mobile -- breaks down? Solar stock SunEdison (SUNE) is providing a good example this week -- and another toxic stock for investors to steer clear of.

SunEdison had been forming an ascending triangle since the start of August, bouncing in between support just below $7.50 and a downtrending resistance line up above shares. The breakdown in SunEdison came with third quarter earnings, but the technical setup in shares had a lot to do with the size of the downward move. Even though SunEdison has now achieved its likely downside target from the pattern, that doesn't mean that the downside risk is over in this stock. Shares could have further to fall from here.

There's a lot of talk among fundamental analysts on Wall Street that SunEdison is dramatically undervalued right now, and that may well be the case. Even so, it's a risky move to try and bottom-feed on this stumbling stock until shares are able to catch a bid above the 50-day moving average. Until that happens, the downtrend is intact.

Mondelez International

It's been a different sort of year for shares of snack foods stock Mondelez International (MDLZ) - Get Report . While the other stocks we've looked at have been toxic to your performance all year long, Mondelez has actually been a strong performer in 2015, up more than 20% since the start of the year. Despite the upside, shares are starting to look "toppy" this fall. Here's how to trade it.

Mondelez is currently forming a double top pattern, a bearish reversal setup that looks just like it sounds. The double top in shares is formed by a pair of swing highs that peak at approximately the same price level -- the sell signal comes on a violation of the trough that separates those two price highs. For Mondelez, that's support down at $41.

The side-indicator to watch right now in Mondelez is momentum. Our momentum gauge, 14-day RSI, has been rolling over, making lower highs on the price action's pair of peaks. That's an indication that down days are outpacing up days in this stock. If $41 gets broken, then this outperformer becomes a sell.

Gilead Sciences

Last up on our list of potentially toxic trades is $152 billion pharmaceutical stock Gilead Sciences (GILD) - Get Report , a biopharmaceutical stock that's been a darling of the healthcare sector for the last few years. More recently, however, Gilead has been showing some cracks. And you don't need to be an expert technical trader to figure out why shares of this biotech don't look attractive right now.

Gilead has been bouncing its way lower in a simple downtrending channel since June. The firm's downtrend is formed by a pair of parallel trendlines that identify the high-probability range for shares of this stock to remain stuck within. Every test of the top of this stock's price channel has been a great selling opportunity so far, and shares are testing resistance for a fifth time this fall. From here, it makes sense to sell the next bounce lower.

Waiting for that bounce lower before clicking "sell" is a critical part of risk management for two big reasons: it's the spot where prices are the highest within the channel, and alternatively it's the spot where contrarians will get the first indication that the downtrend is ending. Remember, all trend lines do eventually break, but by actually waiting for the bounce to happen first, you're confirming that sellers are still in control before you unload shares of Gilead Sciences.

Disclosure: This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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