No doubt about it, three full months into 2017, and this year is shaping up to be a "stock picker's market." In other words, despite the steady climb higher in the S&P 500 this year, a big chunk of this market isn't participating in the move ...
As I write, nearly one in three S&P components are actually down this year--and of those, most are underperforming the big stock market index by 10% or more. That's some pretty nasty underperformance from a huge subset of stocks.
Even more problematic, plenty more are teetering on the edge of breakdown territory as we head deeper into April ...
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 this month, 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.
Without further ado, let's take a look at four "toxic stocks" to sell--and when to sell them.
American International Group Inc.
Leading things off is $61 billion insurance giant American International Group (AIG) . AIG has been under pressure so far in 2017, losing about 5.2% of its market value since the start of the year. That means AIG is underperforming the S&P by a whopping 10.6% in the past three months--and shares could be ready to add to that performance gap this spring ...
AIG has spent the past two months forming a descending triangle pattern, a bearish continuation setup that's formed by horizontal support down below shares at $60.50, and downtrending resistance to the downside. Basically, as AIG pinballs between those two technically important price levels, shares have been getting squeezed closer and closer to a breakdown through that $60.50 support level.
Relative strength, the indicator down at the bottom of AIG's price chart, adds an extra red flag to this trading setup. That's because AIG's relative strength line has been stuck in a downtrend of its own since shares peaked in January, indicating that this stock's underperformance is continuing into the spring. If shares violate $60.50, look out below.
What will move markets this quarter and how should investors position themselves ahead of time? Jim Cramer sat down with four of TheStreet's top columnists recently to get their views. Click here to listen to his latest Trading Strategies roundtable with them and read their advice for stocks, bonds, forex and gold.