5 Stocks You Should Sell in May

Even a Bull Market Can’s Save These Stocks

Sell in May and go away? It is true that May through November is historically a weaker period for stocks; however, we are in the midst of a powerful bull market, and those investors who sell everything now are likely to miss out on big gains this summer.

Last month just before Easter, the key indices broke their downtrends — drawn from the highs of February and April — and drove into major resistance. Despite light volume and narrow breadth, the Easter rally was followed up by a massive breakout, the bullish significance of which cannot be overstated.

Most stocks have rallied from their lows, but some have failed to respond. Those non-performers are stocks you should sell in May.

    View All  Stock to Sell #1 – Lexmark International (LXK)

Lexmark International (NYSE: LXK), a printing, imaging and content management solutions manufacturer, missed its last earnings estimate by a wide margin, and the stock sliced through its bullish support line on high volume. Moving Average Convergence/Divergence (MACD) issued a sell signal as its red (fast) line crossed through the blue (slow) line. The breakdown has special technical significance because of the breakaway gap created when it broke from the bullish support line. Gaps are usually filled unless they occur at an important reversal area such as a bullish support line. Also note the serious warning given in December when the stock flashed a “death cross,” which is considered by some analysts to be a warning that a major trend change is about to occur.

Insiders have been selling LXK, and investors should do the same or short the stock.

    View All  Stock to Sell #2 – P.F. Chang’s China Bistro (PFCB)

Restaurant chain operator P.F. Chang’s China Bistro (NASDAQ: PFCB) has fallen on hard times. After missing Q1 estimates, several analysts cut the stock’s rating, and it plunged through the neckline of a head-and-shoulders formation. This reversal formation is the most widely recognized of all technical formations.

The target for the breakdown is calculated by subtracting the price at the neckline, $44, from the highest price, almost $54, which is $10. That is subtracted from the neckline price of $44 and provides a downside target of $34.

    View All  Stock to Sell #3 – MBIA Inc. (MBI)

MBIA Inc. (NYSE: MBI) operates the primary financial guarantee insurance in the United States. The company’s future has been the source of controversy. Most of the risk is associated with the impact of its exposure to the mortgage-related structured finance market and concerns over its capital adequacy.

From the technical analysis perspective, the stock broke through a major support line early in April, but rallied back, opening an upside gap. This type of gap is usually filled, especially when followed by major sell signals like the “death cross” and a sell from the slow stochastic. The likely downside target is below $7.

    View All  Stock to Sell #4 – Marriott International (MAR)

Hotel operator Marriott International (NYSE: MAR) has struggled in a declining economy. Technically, the stock broke its bullish support line (red dash) early this year and rolled into a downturn. In mid-April, the decline triggered a “death cross” and a sell signal from the slow stochastic. Negative volume has been building and the recent rally seems to be stalled at the downtrend line and 50-day moving average. Insiders have recently been selling shares of MBI. The current price may prove to be an excellent opportunity to sell the shares of MAR.

Stock to Sell #5 – Raytheon Co. (RTN)

Major aerospace and defense contractor Raytheon Co. (NYSE: RTN) is directly impacted by cutbacks in government military and aerospace spending. Its Q1, the company’s earnings fell by 14% and management lowered its full-year earnings estimates.

Technically, RTN rallied from its August low of just under $43 to $53 before rolling down through its 50-day moving average. Curiously, the rally rebounded to 61.8%, a Fibonacci number, of the previous decline — a line which turns back many rebounds. In late March, the 20-day moving average (green line) fell through the 50-day moving average (blue line) for a short-term sell signal, and recently the slow stochastic also issued a sell signal. The weekly charts show that RTN is in a long-term bear market.

Insiders have been selling RTN at a rate of 2-to-1 over the last three months. If the stock fails to hold at its 200-day moving average (red line), it will likely fall quickly for a test of the low at just under $45 in December, and then to $42. In a bull market, it is not prudent to hold a non-performer like RTN.