With the major indices now below their 200-day moving averages, there has been significant technical damage. Rallies will most likely be contained by the conjunction of a falling 50-day moving average and a rising 200-day moving average for each index. The market is now in a short- and intermediate-term decline, and the last day of June puts the long-term trend on the edge of a cliff. That is why it is more important than ever to pick the right stocks to buy and sell. Here are my top stocks to buy and top stocks to sell for the month of July. Plus, I'll throw in an ETF that will help protect your portfolio if the market plunges.
Pharmaceuticals service and drug distribution company, AmerisourceBergen ( ABC), has been in a steady bull channel supported by the 50-day moving average for over a year. The stock is up more than 80% since its low in March 2009, and now appears to be getting stronger as the stochastic is turning up, which is a positive sign, and upside volume is increasing. ABC's growth record has outpaced the industry average of 10.2%, but despite that, it has a P/E ratio of just 16.36 versus the industry average of 16.87, giving it better price appreciation potential than its peers. Furthermore, earnings growth of over 32% has made ABC an institutional favorite. Our technical target is $40, and TheStreet rates it a buy as does S&P, which has a 12-month target of $36.
Top Stock to Buy #2 - Cliffs Natural Resources (CLF)
Cliffs Natural Resources ( CLF) produces metallurgical coal and is the largest provider of iron ore pellets to the North American steel industry. Since its low in February 2009, CLF had a steady run until a big breakout early this year, which vaulted the stock from $55 to $75 in six weeks. A normal correction brought the stock back to its bullish support line at $50, where it double-bottomed with two support buy signals from our proprietary indicator, the Collins-Bollinger Reversal (CBR). Technically, the stock should break resistance at $60 with a trading target of $70. Longer term, S&P rates CLF a four-star buy with a 12-month target of $78.
Top Stock to Buy #3 - Health Management Associates (HMA)
Health Management Associates ( HMA) owns and operates general acute-care hospitals in non-urban areas of the southeastern United States. The stock has been consolidating since March 2010, following a major break from a double-top at $8. The chart doesn't show it, but the first peak of the top in June 2008 was matched in October 2009. It now rests near support at its 200-day moving average, and on June 25, HMA flashed a buy signal from the slow stochastic. The recent acquisition of three hospitals should allow HMA to continue its growth rate and give it additional exposure to the Florida market. Both Credit Suisse Equity Research and S&P recommend HMA with a 12-month target of $11. Technically, if the stock can break from its 50-day moving average at $9, look for a quick run to $11 and possibly beyond.
Stock to Buy #4 - Illumina (ILMN)
Illumina ( ILMN) is a world leader in genetic analysis technology, developing innovative array-based tools for the large-scale analysis of genetic material. Sales are expected to rise 22% this year on "continued robust sales of sequencing instruments," and earnings are estimated at $1 by S&P. On June 10, the stock broke from a double-top at $45, and flashed a stochastic buy signal following a cluster of buy signals from our internal CBR indicator. If ILMN can break its June high, look for a run to over $52. S&P's rates the stock a "four-star buy" with a 12-month target of $50.
The ProShares Short Dow 30 ( DOG) is an exchange-traded fund (ETF) that seeks to mirror the inverse daily performance of the Dow Jones Industrial Average . With the major indices acting anemic, DOG provides a way to insure portfolios against a major breakdown, and could even give traders a quick profit without a major breakdown of the parent index. The Dow is currently finding support at 10,000, and then 9,800. But if it fails to hold at 9,800, then look out below, because a 1,000-point decline to 9,000 is possible, and that would likely result in a run to the $60s for DOG.
Top Stock to Sell - Research In Motion (RIMM)
Canadian-based BlackBerry-maker Research In Motion ( RIMM) reported a 20% increase in quarterly profits on June 25, and a plan to buy back 31 million shares. But shipments are down, and sales have been hurt by the success of the Apple ( AAPL) iPhone. Even though many research firms have jumped to defend RIMM's earnings results, it is apparent that the marketplace is saying something else. Technically, the breakdown of the stock through a big double-bottom with a breakaway gap on huge volume is a killer. If you own this stock, sell it on a rally. For those who are interested in shorting RIMM, also wait for a rally to do so, since the gap at $58.29 to $55.14 could be filled. It would be wise to short a half position now and a full position if the gap is closed. As usual, always use a stop-loss (buy limit) to protect against the risk of a major rally, and contact your broker to borrow shares before entering a short sale. This is a high-risk recommendation that is only suitable for traders.