So much for the selloff many market watchers were expecting when Donald Trump came out victorious in the election. U.S. markets have been clawing higher in the sessions since the vote, rallying back to within 1% of all time highs for the S&P 500.
But just because Mr. Market survived election day, don't think that stocks are out of the woods just yet in 2016.
That's because, despite the fact that stocks are teetering on the verge of record prices this fall, a very big chunk of this market simply hasn't been working in 2016. Year to date, 172 of the stocks in the S&P 500 are actually lower than they started. Most of those are down a lot -- almost two-thirds of S&P decliners this year are down by 10% or more.
Put simply, it's been very easy to perform a whole lot worse than the top-line stock market stats would have you believe this year.
And it makes an important point crystal clear: simply not owning the very worst performers could do more for your returns than owning the best ones as we continue down the final stretch of 2016...
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.
Up first on our list of potentially toxic trades is $4.7 billion business support company Genpact (G) . Genpact has been an underperformer in 2016, down 6.8% since the calendar first flipped to January at the start of the year - but this stock's price trajectory actually a lot worse than that. You see, Genpact is actually down more than 17% since shares peaked back in early June. And a bearish technical price setup is signaling the risks of another downside leg this fall.
Genpact is currently forming a descending triangle pattern, a bearish continuation setup that puts Genpact on track for another selloff. The pattern is formed by a horizontal support level down below shares (at $22.75 in Genpact's case), and downtrending resistance to the top-side. Basically, as Genpact bounces between those two technically important price levels, it's been getting squeezed closer and closer to a breakdown through our aforementioned $22.75 support line. If and when that happens, it's time to hit "sell."
It's important to remember to be reactionary with Genpact, or with any of the other technical trades on our list here. Even though the setup looks toxic, the sell signal doesn't actually come until shares violate $22.75 and sellers retake control of this mid-cap stock. For now, Genpact is simply waving a caution flag.