BALTIMORE (Stockpickr) -- There's really nothing worse than losing money in a bull market.
So yes, the market may be bouncing this week, and the trend may be "up, up, and away," but some names are looking toxic as we head deeper into February. Holding onto them could be like kryptonite for your portfolio this month, which is why were scoping out the exit signals in five big-name charts today.
To be fair, 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, these toxic stocks are some of the worst positioned names out there 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.
First up is blue-chip tech stock IBM (IBM) - Get International Business Machines Corporation Report, a name that's been seriously underperforming the broad market for a while now. IBM may have already given up 9% in the last 12 months, but now isn't an opportunity to get into shares on the cheap. That's because the technicals point to more downside in Big Blue right now.
IBM is currently forming a descending triangle, a bearish setup that's formed by a horizontal support level below shares at $172 and downtrending resistance to the upside. Basically, as IBM bounces in between those to technical levels, it's getting squeezed closer and closer to a breakdown below that $172 support level. When that happens, we've got our sell signal.
The descending triangle in IBM has been forming in the very long-term, and as a result, the trading implications are long-term if shares can't hold $172. From a valuation standpoint, IBM may indeed be a cheap stock -- but it looks like it could get materially cheaper.
The last year has brought much more impressive performance for Nielsen Holdings (NLSN) - Get Nielsen Holdings Plc Report. The viewership data and analytics company has rallied more than 34% in the last 12 months. But the rally could be coming to an end in NLSN; shares are starting to look "toppy" in February.
Nielsen is currently forming a double top pattern, a price setup that's formed by two swing highs that top out at approximately the same level. Nielsen's second top isn't completely formed yet, but that doesn't change how to trade it. A breakdown through support at $41 is the signal that buyers have vacated shares.
Momentum adds to the bearish picture in NLSN. 14-day RSI has been making lower highs, pointing at price to follow suit. For now Nielsen is in no-man's land: shares are sitting below a hard resistance level at $46 and our breakdown level at $41. A break to the downside makes it very clear who's in control of shares this month.
Liberty Property Trust
For income investors, mid-cap real estate investment trust Liberty Property Trust (LRY) looks like a pretty decent option at first blush. After all, the REIT pays out a hefty 5.2% dividend yield right now, a fat distribution during a period of otherwise lean rates. But just hold on -- LRY looks likely to sport a higher yield pretty soon as its share price gets smacked lower.
You don't have to be an expert technical analyst to figure out what's going on in shares of LRY: This stock is bouncing lower within a well-formed downtrend. Shares have gotten batted down from trendline resistance on the previous three tests of the top of the channel. So now, with shares testing resistance for a fourth time, another move lower is the high probability trade.
The fact that LRY's price channel is wide makes it particularly rough to be long -- this stock could have a lot further to fall without violating its trend. For that reason, investors should stay away from the long-side of LRY until it can definitively break its trend channel.
Sellers have been in the driver's seat of this stock for the last six months now; don't buy until that changes.
We're seeing the exact same setup in shares of LG Display (LPL) - Get LG Display Co. Ltd. Report right now -- only worse. LPL's price action is worse because it's a much longer-term downtrend. The setup has been in play since all the way back in November 2012, and shares have gotten shoved lower on each of the last six tests of trend line resistance. Now, LPL is coming up to test its price ceiling for a seventh time.
There's a reason why they say "this time it's different" are the four most expensive words in the English language.
So as shares come up to the top of the channel, the ideal trade is to sell the bounce off of resistance. Waiting to sell on a bounce makes sense for two big reasons: it gets you out (or short) as close to the top of LPL's range as possible, and it verifies that sellers are still in control above the top of the channel. All trend lines do eventually break, but waiting for a bounce lower keeps you from selling right before this one does.
In the short term, Western Digital (WDC) - Get Western Digital Corporation Report looks pretty solid right now. Shares bounced higher alongside the broad market, and now they're up more than 1.6% in the last five sessions. But don't let the recent bounce fool you; WDC looks "toppy" when you zoom out your timeframe. Here's how to trade it.
Western Digital has been a big momentum name in the last six months, rallying 26% over that span. For comparison, the S&P 500 has only managed to move 7.6% higher over that same period. But now, a head and shoulders top is aiming WDC lower. The head and shoulders is a bearish price pattern that indicates exhaustion among buyers. It's formed by two swing highs that top out at approximately the same level (shoulders), separated by a higher peak in between them (the head). The sell signal comes on a push through the pattern's neckline, which is right at $82.50 for WDC.
So despite the bounce in shares after the right shoulder formed, it's still a sell if it slips below the $82.50 level. There is a silver lining -- the relatively small size of the setup means that it's more likely to result in a correction than a crash. So buyers take note: A buying opportunity could be ahead for this tech name.
To see this week's trades in action, check out the Toxic Stocks portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.
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At the time of publication, author had no positions in stocks mentioned.
Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to TheStreet. Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily, and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation.
Follow Jonas on Twitter @JonasElmerraji
Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to
. Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in
Investor's Business Daily
. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation. Follow Jonas on Twitter @JonasElmerraji.