Contrarian stock picking

January 7, 20195 Comments

Below, I have copied the year end summary from Seeking Alpha for 2018. It may be of interest to some readers. I added to the international index returns the statistic for the TSX 300 total return, as they didn’t bother reporting that.

After reviewing the “top stock losers” for the DJIA, S&P500 and NASDAQ, I thought it might be fun to see if any of these bad apples are worthy for consideration as turnaround plays.

Below the Seeking Alpha list are my charts and notations on a few of these under loved stocks. I chose the ones that most of you might be familiar with. I won’t bother mentioning that a stock is below its 200 day SMA in the write-ups—as all of them are. We’re examining these stocks in bargain hunting mode, not trend following mode.

U.S. Indices
For the year, the Dow fell 5.6%, the S&P 500 dropped 6.2% and the Nasdaq Composite shed 3.9%, marking the worst annual performance for all three indices since 2008. Russell 2000 -13%. CBOE Volatility Index +132% to 25.42.

S&P 500 Sectors
Consumer Staples -11.2%. Utilities +0.5%. Financials -14.7%. Communication Services -16.4%. Healthcare +4.7%. Industrials -15%. Information Technology -1.6%. Materials -16.4%. Energy -20.5%. Consumer Discretionary -0.5%. Real Estate -5.6%. 

World Indices
London -12%. France -10.5%. Germany -18%. Japan -12.1%. China -24.6%. Hong Kong -13.6%. TSX -11.64%

Commodities and Bonds
Crude Oil WTI -24.8%, the largest annual drop since 2015. Gold -2.8% to $1,281/oz. Natural Gas -16% to 3.10. Ten-Year Treasury Yield rose 27.6 basis points, its biggest annual rise since 2013.

Forex and Cryptos
U.S. Dollar Index +4.3%, its strongest rise since 2015. EUR/USD -4.6%. USD/JPY -2.7%. GBP/USD -5.6%. Bitcoin -75.1%. Litecoin -86.3%. Ethereum -82.4%. Ripple -82.6%. Bitcoin-Cash -93.1%.

Top Stock Gainers
Dow: MRK +35.8%, PFE +2.5%, MSFT +18.7%, NKE +18.5%, V +15.7%.
S&P 500: AMD +79.6%, ABMD +73.4%, FTNT +61.2%, AAP +57.9%, TRIP +56.5%.
Nasdaq 100: AMD +79.6%, WDAY +56.9%, LULU +54.7%, ORLY +43.1%, NFLX +39.4%.

Top Stock Losers
Dow: GS -34.4%, IBM -25.9%, DWDP -24.9%, CAT -19.4%, MMM -19%.
S&P 500: COTY -67%, MHK -57.6%, LB -57.4%, GE -56.6%, PRGO -55.5%.
Nasdaq 100: WDC -53.5%, JD -49.5%, KHC -44.7%, WYNN -41.3%, LBTYA -40.5%.
*Stocks only include those which ended 2018 on the list of each index.

 

Goldman Sachs

 

GS fell like a brick until reaching support at the neckline of its 2016 double bottom breakout. That’s near $160. If the market wants to keep going, the banks will be big drivers. That statement applies to either an upside move—or a crash. Upside target might be $21, and downside would see the lows of the old double bottom formation at $140.

 

IBM

 

Big Blue is back to its 2016 lows near $107. This stock could be very attractive IF and only IF it holds $107 and the market cooperates. Upside could be $135 to the mid $150’s. But if $107 breaks, run for the hills.

 

DWDP

 

Long-time resistance at $48 seems to be offering current support on DuPont. Lower lows and lower highs spell current a bear trend for the stock, so I’d want a lot more evidence of stability before touching this stock. But it is encouraging so far.

 

COTY

Don’t even ask. Next.

 

Mohawk

Mohawk has been scalped. Support at $130 wasn’t even tested. MHK is sliding down a grease-covered waterpark slide. Avoid.

 

L Brands

LB has been in a downtrend (lower highs and lows, permanently remaining below the 200 day SMA) since 2015. Clearly if the stock couldn’t rally with the other zillion stocks that went parabolic in 2017, nothing can help it.

 

 

GE

Beyond an oversold bounce, this stock is the dogs breakfast. Avoid.

 

Perrigo

If you can’t see why you need to avoid PRGO’s  broken chart, I’m sorry, but we just can’t be friends any more. Go study astrology or something.

 

Western Digital

If you like steep roller coaster rides, this may be the stock for you. Support from 2016’s lows of near $33 seems to have held for WDC. If the market cooperates, the climb back up might be almost as exciting as was the previous decline(s) and climbs! Not for the faint of heart, that’s for sure.

 

Kraft

The upside down smile (rounded top) on KHC may see completion at $40 (about another 10% downside to go). From there, we’ll need to see lots of hungry kids spoonin’ down their Kraft Dinner Mac/Cheese to make up for the lost ground. It’s way too early to prognosticate on a potential turnaround. Check back later on this story.

 

Wynn Resorts

This stock chart is actually a pretty constructive looking one. Its really basing well – something like $90- $115. You could trade the move between those levels if you are a short termed trader. Longer termed investors will want to see $115 break. But the action has been reasonably positive so far.

 

Conclusion

The only stocks that remotely interest me in this list are GS, IBM, DWDP, WDC and WYNN. They all have greater than average risk, so do your research before considering a position in any of them. That, and look for a sustainable broad based bull market to carry them…. something I am not fully convinced we will see for a bit. For a full report on my market outlook, click here.

5 Comments

  • Keith,
    While we are all waiting for the market to show it’s hand, and confirm whether the worst is over or there is more downside to come, what do you think about presently taking a small position in either the Healthcare or Utilities sectors? As your stats above show, these sectors took the smallest hit in the 2018 correction, and were actually (+)ve for the year.

    Reply
  • Hello Keith,
    I’ve been sitting in cash since mid-December. Kicking myself for not buying in several days ago.
    Something tells me this correction we saw from Oct. till end of Dec. was a coordinated effort of a few big Wall Street institutions done on purpose to trigger margin calls, and drive the markets lower, so they can collectively buy in at the lows. This is some serious manipulation going on, yet, impossible to prove.
    There seems to be a disconnect between the U.S markets and data coming in throughout the world (Germany, China) is getting worse yet our markets have been moving up. Samsung jus fired a big warning this morning. I really believe this rally might continue till the end of the first quarter then down she goes, to a much lower level on the S&P 500 than the previous low.

    Reply

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