There are a couple of undeniable facts that are critical for investors to acknowledge in 2017 ...
First, we're in the middle of a rip-roaring bull market. And second, a huge chunk of the individual stocks that make up that market aren't participating in it.
As I write, the S&P 500 is up more than 24% on a total returns basis since last February. But over that exact same timeframe, nearly a hundred S&P components are actually down, underperforming by a huge margin. That's about one in five S&P stocks that's not participating in the new highs that are grabbing the headlines in 2017.
Simply put, a bigger segment of the stock market than most people are willing to realize has been "toxic" for the last year and change. And dozens more are teetering on the edge of major breakdowns as we head deeper into 2017.
That's the bad news.
The good news is that the secret to crushing the S&P 500 this year isn't necessarily in picking out the very best stocks for the year ahead; instead, all you have to do is avoid the very worst ones.
So, to find the stocks to avoid in the final stretch of March, we're turning to the charts for a technical look at four you should consider selling here ...
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 four "toxic stocks" to sell--and when to sell them.
From a technical standpoint, the world's biggest energy company is showing some cracks right now. Exxon Mobil (XOM) has been experiencing a challenging year in 2017, shedding about 10% of its market value since the beginning of January. The trouble for XOM bulls is that shares are testing a key breakdown level this week.
Exxon is forming a descending triangle pattern, a bearish continuation setup that flags the possibility for more downside ahead. The descending triangle is formed by horizontal support down below shares at $81, with downtrending resistance above it. Basically, as XOM bounces between those two technically important price levels, shares have been getting squeezed closer and closer to a breakdown through that $81 price floor. When that happens, we've got a sell signal in Exxon.
Remember to be reactionary when looking at Exxon (or, for that matter, any of the other potentially bearish trades on this list). $81 has acted like a floor for shares since early February, and Exxon doesn't open up outsized downside risk until that price level gets violated. In the meantime, it's waving a red flag for investors ...