A stock's fundamental story and chart story can differ, but when the charts are bearish, it generally pays to recheck your fundamentals.
These are the five stocks I would tell John Paulson to sell now from his portfolio.
Yes, John Paulson is a pretty bright guy and has done well in the markets, but I am not sure he includes technical analysis in his decision-making process. Maybe his does, but when I looked over a list of 10 stocks he had bought in the second quarter, I found a few names I would be looking to sell now.
These names might be attractive again in the fourth quarter of 2016, but right now they all look vulnerable to declines.
In this daily chart of Priceline (PCLN) , we can see a stock that has some big trading swings, but over the past 12 months buy and hold did not make you money. Prices are above the rising 50-day and 200-day moving averages, but volume has slowed during the rally of the past two months. The daily on-balance-volume, or OBV, line has not broken out to a new high for the move up like prices have, and momentum is weakening with a July/August bearish divergence.
In this three-year weekly chart of PCLN, prices are above the 40-week moving average line, but the slope of the line is flat or neutral. The weekly OBV line has been trending sideways for the past three years, and in the lower panel is the 12-week momentum study. Like the daily bearish divergence between higher prices and weaker momentum, we can see the same setup on this weekly chart.
With Priceline looking vulnerable on the daily and weekly charts, we would recommend reducing or eliminating a long exposure to the stock.
EMC (EMC) has made a nice upside move this year, but price momentum is weakening, and the OBV line has not kept up with the price gains. EMC is above its rising 50-day and 200-day moving averages, but moving averages are lagging indicators. Moves in the OBV line tend to be coincident or even lead at turning points. Prices have made new highs this month, but the OBV line has not confirmed these gains with new highs. In July and August, prices made a high and then a higher high, but the 12-day momentum study in the lower panel made a lower high, telling us that acceleration was slowing. Momentum is a leading indicator.
In this three-year weekly chart of EMC, we can see that prices are above the rising 40-week moving average line, but there is a band of resistance above the market from $29 to $31. The weekly OBV line has improved a little in recent months, but the longer pattern the past three years has been down. In the lower panel is the 12-week momentum study, which shows equal highs vs. the higher highs on the price chart. This too is a bearish divergence and can be foreshadowing a reversal to the downside.
This daily chart of Sanofi (SNY) suggests that either Paulson is very patient and willing to buy a stock in a downtrend or he is anticipating a reversal and he is early. (There is another possibility: that he is wrong.) Sanofi has been in a downtrend for much of the past 12 months and made a new low for the move down in June. Sanofi would have to rally above $43 to make a higher high and establish an uptrend. The stock is below is declining 50-day and 200-day moving average lines. The daily OBV line just made a new low for the move down and may be foreshadowing a new price low. Momentum is not giving a bullish divergence at this time.
In this longer-term chart of Sanofi, we find an odd setup of indicators. Prices are below the declining 40-week moving average line. The weekly OBV line has been rising the past four to five months even while prices have been weak. A rising OBV line happens when the volume of trading is heavier when Sanofi closes higher for the week, suggesting aggressive buying. The odd thing is that prices have not been able to rally, so what gives? A weekly close below $38 would not be a positive development for SNY.
Quintiles Transnational Holdings
In this daily chart of Quintiles Transnational Holdings (Q) , we have prices going up, but sellers being more aggressive and momentum weakening. Prices are above the rising 50-day and 200-day moving average lines. The pattern of volume since May is heavier than earlier, but it doesn't really rise through the advance. The OBV line has been weakening since March, and we can see a bearish divergence between the higher highs in price in July and August and the weaker momentum readings.
In this weekly chart of Quintiles, we can see what might become a double top around $80. Prices are back to their mid-2015 highs, but the OBV line is not back to its best level. There are higher highs in price this year but equal highs in momentum. The momentum divergence is our "amber warning light." A weekly close above $80 would change our current bearish stance to bullish.
Unless you aggressively traded Cigna (CI) in the past 12 months, you probably haven't made money. Prices are below the popular moving averages. The OBV line has been in a downtrend since late December and suggest further price weakness ahead.
In this weekly chart of Cigna, we fail to find much in the way of a bullish story. Prices are below the declining 40-week moving average line. The OBV line is pointed to the downside.