5 Toxic Stocks That Are Poisoning Your Portfolio
BALTIMORE ( Stockpickr) -- These five stocks could be hazardous to your health -- well, hazardous to your portfolio's health, anyway.
The old saying goes that "It's a market of stocks, not a 'stock market,'" and that's certainly true today, in spite of a broad market rally that's sent the S&P 500 up close to 20% since the start of last summer. Even though most stocks are following the big index's cues, a handful of names have been consistent underperformers. No great surprise, those are the ones you don't want to own.
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.
>>5 Big Tech Stocks to Trade (or Not) British American Tobacco
Up first is British American Tobacco (BTI) , the $100 billion ADR that owns cigarette brands such as Dunhill, Lucky Strike and Pall Mall. BTI hasn't been a strong performer so far in 2013 -- in fact, shares have done a whole lot of nothing since the calendar flipped over to the new year. But that's not why this stock looks toxic. Instead, it comes down to the long-term setup in shares.
British American Tobacco has been forming a descending triangle pattern for most of the last six months as shares bounced between a trend line resistance level to the upside and horizontal support at $100 below shares. A breakdown below support is the sell signal for BTI.
With any technical pattern, it's critical to think in terms of buyers and sellers -- not just shapes. After all, triangles, head and shoulders patterns and the like are a good way of describing what's happening on a chart, but they're not the reason why it's tradable. Instead, that all comes down to the supply and demand caused by those buyers and sellers.