5 Toxic Stocks You Should Sell in February
BALTIMORE ( Stockpickr) -- Are you poisoning your portfolio? If you own these five toxic names, you may be.
To be fair, the companies I'm talking about today aren't exactly "junk." I mean, they're not next up in line at bankruptcy court. But that's frankly irrelevant; from a technical analysis standpoint, they're some of the worst positioned names out there 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 this fall. 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.
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 planning their stock execution.
So without further ado, let's take a look at five "toxic stocks" you should be unloading in 2013. BlackBerry
Don't let yesterday's price action (or the new ticker symbol, changed from Research In Motion's RIMM) fool you, BlackBerry (BBRY) is still the same stock it was last week. The $6.8 billion cell phone maker spent most of the last year in a downtrend, dropping like a rock as competing handsets shoveled market share away from the firm. And even though the oversold stock bounced hard in the last quarter, it still looks toxic at this point.
That's because BBRY is currently in the early stages of forming a head and shoulders top, a price pattern that indicates exhaustion among buyers. The head and shoulders is formed by two swing highs that top out around the same level (the shoulders), separated by a bigger peak called the head. The sell signal comes on the breakdown below the pattern's "neckline" level, currently at $11.50.
Momentum, measured by 14-day RSI, had been in an uptrend following this stock's lows back in the Fall -- but that uptrend broke at the turn of the new year. Now momentum is trending lower. Since RSI is a leading indicator of price, that doesn't bode well for BBRY. This is still a volatile stock, and it's likely we'll see big swings in both directions for a while now; if the neckline gets broken, though, look out below. Nokia
We're seeing the exact same setup in another cellular phone stock: Nokia (NOK) .
Like BBRY, Nokia spent much of 2012 crashing, only bouncing back in the last quarter after shares got too oversold. An identical pattern is in play in Nokia; the stock is a head and shoulders top, in this case with a neckline at $3.80. A breakdown below that price level is the sell (or short) signal for this phone maker. Here again, a breakdown in momentum adds some extra confirmation to a short-side setup in this stock.