BALTIMORE (Stockpickr) -- Finally. After a pretty nasty start to the week, the big stock indices managed to bounce on Thursday, catching a bid after giving back about half of 2015's hard-earned gains. But the picture being told by the big stock market indices is a little misleading.
Frankly, saying that "stocks are up" this year is a case of wishful thinking. We're four months into 2015, and just about half of the S&P 500 is actually down this year.
Put simply, some stocks just look "toxic" right now. And outperforming in this market is more about not owning the wrong stocks than it is about owning the right ones. That's why, today, we're taking a closer look at five toxic stocks to sell in May.
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 entry and exit points.
So without further ado, let's take a look at five toxic stocks you should be unloading.
Las Vegas Sands
Up first is casino stock Las Vegas Sands (LVS). Shareholders in this $41 billion gaming resort owner have been dealt a pretty ugly hand lately. Since this time last year, shares have shed about 35% of their market value. The bad news is that LVS could actually have further lower to go.
LVS has spent all of 2015 forming a descending triangle pattern, a bearish continuation pattern that's formed by downtrending resistance up above shares and horizontal support to the downside (in this case at $52 support). Basically, as shares of LVS have bounced between those two technically important price levels in 2015, this stock has been getting squeezed closer and closer to a breakdown below our $52 price floor. When that happens, we've got a pretty big sell signal.
Relative strength, at the bottom of the chart, is an extra red flag in LVS. That's because our relative strength line has been in a downtrend since last summer, an indication that this stock isn't just losing steam here, it's also significantly underperforming the rest of the market pretty materially.
Owning this stock may already be a roll of the dice here, but it becomes toxic with a move below $52.