U.S. stocks again closed at all-time highs, but it’s not hard to get the sense that danger still lurks. Even Tuesday’s trading looks somewhat concerning: all three major indices faded into the close, with the Dow Jones Industrial Average closing modestly in the red.
The question at this point might be what catalyst is left to move the market higher. A solid earnings season led by the likes of Amazon (NASDAQ:AMZN) and Apple (NASDAQ:AAPL) is coming to an end. The Federal Reserve is unlikely to move rates ahead of a contentious presidential election. Progress in containing or even curing the coronavirus could help, but U.S. stocks have mostly shrugged off fears of a pandemic.
Wednesday’s big stock charts feature three names with much the same sense as the market. Two of these stocks actually performed reasonably well of late. But all three have their own catalyst problems and charts that at least suggest downside is on the way.
For investors looking to bet on a market decline — or at least a much slower rally — these stocks could be three to avoid, or possibly to short.
Facebook (NASDAQ:FB) sold off last month despite a fourth quarter earnings beat. And though shares look cheap, the first of Wednesday’s big stock charts suggests more downside could follow the decline on Tuesday:
- The pullback on Tuesday changes the technical picture for FB stock. Shares fell through the 50-day moving average. The pattern looks something like an inverted cup-and-handle pattern, with the appropriate low volume rally followed by a higher volume sell-off. And below about $204, FB makes a bearish reversal out of its ascending narrowing wedge. Right now, this chart suggests FB is headed down, potentially to the 200DMA around $192.
- Fundamentally, such a move does seem like too much. Shares are cheap, at less than 22x current consensus earnings per share estimates for 2020. But regulators again are poking around Big Tech, which appears to have led in part to Tuesday’s sell-off. The worry heading into the Q4 release was whether Facebook might guide for higher spending, as it did when Facebook stock plunged back in mid-2018. Instead, the company projected slowing revenue growth, which spooked investors.
- Particularly with Apple, Amazon, Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) rallying after earnings, it’s possible investors are looking to rotate out of FB stock. Whether it’s worries about younger users or broader concerns about growth, investors don’t appear to see FB stock as quite compelling enough right now. And so it may take a lower price to draw buyers in.
Department store Kohl’s (NYSE:KSS) continues to slide. Shares have fallen over 40% from late 2018 highs, and the second of our big stock charts suggests trading could get worse:
- Levels reached late last month represented a two-year low, and sent KSS below a key level of $45 that generally had held as support going back to August. The 20-day moving average looks like resistance at the moment. The one piece of good news is that KSS stock has established a descending narrowing wedge pattern which often leads to a bullish reversal. But even that reversal would have to clear and hold potential resistance from the 50- and 200-day moving averages.
- Here, too, there’s a catalyst question. Kohl’s does have fiscal fourth quarter earnings on the way in early March. But the company already gave updated guidance in early January, after which shares fell over 6%. Full-year guidance for fiscal 2020 (ending January 2021) could move the stock, but at the moment there’s little reason to see much in the way of optimism.
- That seems true for brick-and-mortar retail as a whole: even leaders Walmart (NYSE:WMT) and Target (NYSE:TGT) have struggled of late. The entire industry needs a big earnings season (which begins with Walmart earnings on Tuesday), and that goes double for Kohl’s. Anything short of upside FY20 guidance seems likely to send KSS stock even lower.
In a market that hasn’t been consistently friendly to industrial stocks, Hubbell (NYSE:HUBB) has posted strong performance. HUBB stock is up 30% over the past year. But the third of Wednesday’s big stock charts suggests the rally may be at an end:
- HUBB stock simply hasn’t been able to clear $150. A solid fourth quarter earnings report last week drove brief optimism, but shares actually closed down for the day. A rally since led HUBB above resistance again on Tuesday, but shares faded along with the market. For now, at least, there’s a lid on HUBB stock and not an apparent catalyst for HUBB to clear through.
- To be fair, there’s some reason for optimism, with the 50-day moving average providing some support and the uptrend still intact. And HUBB is cheap enough to keep rallying, at 16x 2021 consensus EPS.
- Still, there’s a catalyst problem here. And it may require that the broad market find a catalyst for its own rally, which can lead HUBB to finally get through resistance and break out.
As of this writing, Vince Martin has no positions in any securities mentioned.