BALTIMORE (Stockpickr) -- I've got some good news, and I've got some bad news.
First, even though market performance has been anemic in 2015, as I said yesterday, a big chunk of the individual names on the market are actually posting some meaningful performance this year. That's the good news.
The bad news is that an equal number of stocks are looking downright "toxic" right now. While the S&P 500 index has managed to scrape its way 3% higher year-to-date, one in 10 S&P components is down double-digits over that stretch of time -- and those are just the obvious ones. Owning these toxic stocks could be hazardous to your portfolio's health this summer.
That's why today we're taking a closer look at five toxic stocks you should sell in June.
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.
Up first is DVR-maker TiVo (TIVO), a stock that's been giving investors no shortage of grief in 2015. Since the calendar flipped to January, TiVo has shed approximately 10% of its share price, underperforming during a stretch of time when performance has been hard to come by. The bad news is the TiVo could be in store for even more downside ahead.
TiVo is currently forming a textbook descending triangle pattern, a price setup formed by downtrending resistance above shares and horizontal support to the downside, in this case at $10.50. Basically, as TiVo bounces between those two technically significant price levels, it's been getting squeezed closer and closer to a breakdown below our $10.50 price floor. When that happens, we've got a big sell signal in this stock.
Relative strength at the bottom of the chart (not to be confused with RSI up top), is an extra red flag in TiVo. 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 in the long-term. Things really get ugly if $10.50 gets violated.
Things have been going a lot better in shares of $112 billion health care stock UnitedHealth Group (UNH). Since the beginning of the calendar year, UNH has added more than 15% to its share price, outperforming the rest of the S&P 500 by a factor of five. But investors might want to think about taking some gains off the table here. UNH is beginning to show signs of a top.
UnitedHealth is currently forming a double top pattern, a bearish reversal setup that looks just like it sounds. The double top is formed by a pair of swing highs that peak at approximately the same level. The sell signal comes on a violation of the trough that separates those two tops. For UNH, that's the $112 support level on the chart.
Momentum, measured by 14-day RSI, adds an extra red flag to the price action in UNH. Our momentum gauge made lower highs at the same time that UNH's price action was re-testing resistance at its second top. That's a bearish divergence that indicates buying pressure is weakening.