Sell-Rated Stocks a Source of Funds

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NEW YORK ( TheStreet) -- As major equity averages power to new multi-year highs or new all-time highs, individual stocks became overvalued fundamentally, and their weekly chart profiles became overbought technically. Recently, this process has resulted in numerous stock-specific downgrades to sell, particularly in the transportation and construction sectors.

The stock market has been operating under a valuation watch or warning consistently year-to-date. A watch is when 60% to 65% of all stocks are overvalued and a warning is when 65% or more of all stocks are overvalued. Today, this measure is a warning at 65.2%. As an added concern, 15 of 16 sectors have been overvalued, with 14 overvalued by double-digit percentages, led by consumer staples overvalued by 27.1%, transportation by 26.1% and construction by 25.1%.

My reading of technical momentum is a 12x3x3 weekly slow stochastic where readings above 80.00 on a scale of 00.00 to 100.00 are overbought. All major averages have mojo readings above 90.00.

So far in March, www.ValuEngine.com has downgraded numerous stocks to sell. In addition, when a stock rated hold or buy reaches its one-year price target, it becomes a source of funds at least on a partial sale in a buy-and-trade strategy.

Wall Street does not seem to follow these important research guidelines. The typical analyst never downgrades a stock unless its price has crashed. When a stock is moving higher the analyst almost always raises the price target, and never advises profit-taking. I consider profit-taking a good thing.

When Apple (AAPL) ($452.08) traded above $700 per share on Sept. 21, 2012, the stock reached the ValuEngine one-year price target at that time, where it became a partial source of funds. On Wall Street, analysts covering Apple raised their price target.

On March 6, I wrote Apple Buy, Google Hold, Amazon Sell , and followed with Apple Wins the Search for Value on March 14. Apple tested my annual value level at $421.05 on March 4 and March 5, while Wall Street was lowering their price targets. Today Apple remains buy-rated, is 19.5% undervalued and has a one-year price target at $480.41. My semiannual pivot is $470.21, with my annual risky level at $510.64.

Amazon (AMZN) ($257.28) had a sell rating on March 6 and was thus a source of funds when it traded between my monthly pivot at $275.15 and my weekly risky level at $277.07.

Google (GOOG) ($814.71) had a hold rating on March 6 and when it spiked to a new all time high at $844.00 it was a partial source of funds testing the ValuEngine one-year price target at $841.81. Wall Street celebrated the record high with raised price targets, not a call for profit-taking.

On March 18, I wrote 12 Sell Downgrades Threaten Dow Transports and Con-Way (CNW) , JB Hunt Transport (JBHT) , Norfolk Southern (NSC) and Old Dominion Freight (ODFL) had sell ratings and were thus a source of funds.