Billionaire hedge fund manager David Einhorn has a reputation for making his firm's investments public knowledge. After he initiates a buy, he wants Wall Street to know why.
But the question that investors should be asking is "when."
Because 13F filings from Einhorn's firm, Greenlight Capital, are delayed by months, there's a question of whether it's too late to buy by the time Greenlight's buy list gets released for public consumption. The good news is that research shows that applying a lag to institutional holdings can generate positive alpha in some cases. Translation: It's not automatically too late to buy Einhorn's favorite stocks -- as long as you use the right timing tools.
In the case of these three Einhorn stocks, however, it's time to sell them.
First, a quick note on the technical toolbox we're using here: Technical analysis is a study of the market itself. Since the market is ultimately the only mechanism that determines a stock's price, technical analysis is a valuable tool even in the roughest of trading conditions. Technical charts are used every day by proprietary trading floors, Wall Street's biggest financial firms, and individual investors to get an edge on the market.
Without further ado, here's a technical look at three of Einhorn's favorite stocks for 2016 that deserve the boot from your portfolio.
Greenlight's timing doesn't look great in shares of apparel stock PVH (PVH) - Get Report . This $8 billion clothing company resumed its long-term downtrend in March, and it's been headed lower in a tight range ever since. Even though shares are trying to break free of their trend this week following positive first-quarter earnings, it's not there yet.
Until PVH can break out above the top of its downtrend, currently right above shares at $95, it makes sense to stay away from the long side of this stock. Sellers are still in control of shares until the chart says otherwise.
Small-cap chemical maker Chemours (CC) - Get Report has seen a blockbuster year so far in 2016. Since the calendar flipped to January, this stock has rallied more than 70%, leaving the broad market averages in its dust. But this stock is finally showing some cracks as we head into June, and investors might want to think about taking some of those gains off the table.
Chemours is currently forming a rounding top pattern, a bearish reversal that looks just like it sounds. The rounding top indicates a gradual shift in control of shares from buyers to sellers, and in Chemours' case, the sell signal triggers on a breakdown through support at $9. If Chemours violates that $9 level, look out below.
Last up on our list of David Einhorn's favorite stocks is large-cap health care stock Baxter International (BAX) - Get Report . Baxter is another stock that's showing major cracks after a strong rally to start the year. While this stock had been in an uptrend since January, shares violated the bottom of their trend channel earlier this month, a move that signals downside risk ahead.
Baxter pulled back to its former uptrend after violating support. While that might seem like a good thing, it's actually not. Instead, it reaffirmed newfound resistance at that level, swatting shares lower again for the last three trading sessions. Now looks like a good time to take gains on Baxter if you own this medical equipment stock.
Disclosure: This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.