5 Toxic Stocks You Should Sell Before the Next Drop


BALTIMORE (Stockpickr) -- Thursday's 2% drop in the S&P 500 was just the warning shot. Nasty as yesterday's selloff may have been, there's a lot more downside risk left in the market this summer. And that's all the more reason to unload the "toxic" stocks from your portfolio.

The broad market has been long overdue for a correction. In fact, heading into this week, the S&P 500 is looking at its longest stretch yet without a correction back down to trend line support since this orderly uptrend kicked off almost two years ago.

Right now, that support level is down at 1880 in the S&P 500. No, that's not exactly a catastrophic market crash -- but it's certainly a material correction. And remember, that's just in the broad market. Some individual names look due for much bigger declines this summer.

That's why today we're taking a technical look at five toxic stocks you should sell.

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.

Wisconsin Energy

The last quarter has been rough for shareholders in $10 billion energy utility Wisconsin Energy (WEC). In those last three months, this name had lost a whopping 11% of its value. By comparison, that makes the S&P's modest 2.5% run look like a breakneck rally. The problem is that WEC looks primed for an even bigger drop in August.

WEC spent the last few months forming a descending triangle setup, a price pattern formed by horizontal support below shares at $44.50 and downtrending resistance to the upside. Basically, as WEC bounced in between those two technical levels, this utility has been getting squeezed closer and closer to a breakdown below that $44.50 price floor. That level got violated in yesterday's session, signaling a sell in WEC.

From here, the next-closest support level of note is down at $41. Bargain-hunters should wait for a bounce off of that level before trying to step in front of sellers on WEC. Chasing yield could be hazardous to your health in shares of this large-cap utility stock.

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