The S&P 500 is holding onto nearly 7% total returns so far in 2016, strong performance that looks even more one-sided among the top tier of S&P performers right now. As I write, nearly half of S&P components are up 10% or more on a price basis since the start of the year.
Understandably, most of the investor attention in 2016 has been focused on the stocks that are working. But that might be a big mistake. Not owning the wrong stocks might just be more important than owning the right ones as we head toward the final stretch of 2016.
The good news is that some of the biggest potential underperformers are tipping investors off ahead of time this fall…
To figure out which stocks to steer clear of, we're turning to the charts today for a technical look at five stocks that could be toxic for your portfolio in the month ahead.
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.
Just so we're clear, the companies I'm talking about today are hardly junk. By that, I mean they're not next up in line at bankruptcy court -- and many of them have very strong businesses. But that's frankly irrelevant to what happens to their stocks; 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.
So, without further ado, let's take a look at five toxic stocks to sell.