Stocks sold off sharply Friday across the board, sparked by the worst GDP number in a quarter-century.
Big losses were seen in Citigroup (C), which fell 9%, Alcoa (AA), which dropped 7.7% and Procter & Gamble (PG), which traded down 6.4%. The Dow Jones Industrial Average fell 148.15 points, or 1.8%, to 8000.86, and the S&P 500 fell 19.26 points, or 2.3%, to 825.88. The Nasdaq gave back 31.42 points, or 2.1%, to 1476.42.
It was the worst January ever for the Dow and the S&P 500, according to data collected by the Stock Trader’s Almanac. The Dow lost 8.6% and the S&P 500 lost 8.6% last month. The Nasdaq gave up 6.4%, which is shy of January 2008’s loss of 9.9% -- the worst loss in the tech average’s history.
As an old adage on Wall Street goes, “the trend is your friend.” Simply put, as a trader or investor, it pays to be on the right side of a trend. These days, the trend in the market is down.
One way you can identify a trend is by using technical analysis. With technical analysis, an investor can begin to identify if a stock is strong or weak, by looking at such indicators as the 50-day moving average and the 200-day moving average. If a stock is trading above those key moving averages it usually means the stock is strong and in high demand. Investors can also consider such key technical indicators as when a stock hits a new 52-week high or a 52-week low.
If a stock is making new lows it demonstrates that there is no demand for shares in the market and the stock could be heading much lower. Think of it like this: Strength attracts strength and weakness leads to more weakness.
With that in mind, let’s take a look at four stocks that are hitting new 52-week lows, with charts that could be signaling much lower prices ahead.
1. Johnson Controls
First on the list is Johnson Controls (JCI). We all know how bad the economic picture is for the automotive industry and Johnson Controls could be a victim of the extreme weakness in the sector.
The company provides automotive interiors, products and services that optimize energy usage in buildings and batteries for automobiles and hybrid electric vehicles, along with related systems engineering, marketing and service expertise. Recently, Fitch downgraded the long-term ratings for Johnson Controls to BBB from A- and said it remains on negative watch. Looking at the chart below, you can see how shares of JCI are trading below both the 50-day and 200-day moving averages. This is often a very bearish indicator.
The stock has now broken below some previous support around $14 to $13.50 a share on heavier volume and is making new 52-week lows. Volume for the entire month of January has been well above the average volume of 5.4 million shares as the stock has slide 35%. The chart could be forecasting that JCI has much more to go on the downside.
2. FedEx
Next up is FedEx Corporation (FDX). FedEx provides a portfolio of transportation, e-commerce and business services through companies that compete collectively, operate independently and manage collaboratively, under the respected FedEx brand. During weak economies it’s pretty normal for consumers and business to ship fewer goods, as people cut back on purchasing goods and shares of FedEx are displaying some very bearish trends.
Looking at the chart below, you can see how FDX failed to trade back up to the downtrend line as the stock made lower highs and formed a double top pattern at around $76 a share. The stock has now fallen through previous support around $54 to $55 a share and is hitting fresh 52-week lows.
Pay attention to the spike in volume on Friday, which was 4.6 million shares versus the average daily volume of 3.2 million shares. It’s worth noting that FedEx competitor United Parcel Service (UPS) is also hitting new 52- week lows, which demonstrates the weakness across the entire transportation complex. This stock could be setting up for more downside in the future.
3. Central European Distribution
Another bearish looking chart can be found with Central European Distribution (CEDC). Central European Distribution is an integrated spirit beverages business. The company produces vodka at two distilleries in Poland and is a distributor of alcoholic beverages. The chart for CEDC isn’t a pretty picture by any stretch of the imagination.
After the stock plunged from a 52-week high of over $75 a share, the stock formed a trading channel between around $26 a share to about $17 a share. The stock has now broken below that channel, on heavy volume that reached 2.3 million shares on Jan. 21 -- versus the average daily volume of 957,000 shares. This stock is down over 78% from its highs, but the chart could be forecasting even more downside in the future.
4. Novartis
Last but not least is Novartis (NVS). This Switzerland-based company is engaged in the research, development, manufacture and marketing of medicines. The weakness in Novartis is a bit perplexing, considering that drug stocks are usually a place that investors hide in during bear markets because of their recession-resistant business segments.
Looking at the chart below, you’ll see how shares of Novartis were making lower highs as the stock traded up against the 200-day moving average. The stock has now broken below all previous support and it’s hitting fresh 52-week lows on some big volume. Jan. 28’s volume was 7.3 million shares, on Jan. 29, 4.8 million and on Jan. 30, volume was 3.3 million -- versus the average daily volume of 1.9 million shares. It’s very possible that this stock is set to move much lower.
Keep in mind that all of this bearish price action is happening after the company posted a 62% rise in fourth-quarter profits on Jan. 28.
To improve your own technical stock-picking skills, you can share ideas and pick up some tips on Stockpickr’s technical analysis forum.
Posted on Feb. 2, 2009
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