Matt Krantz in USA Today on Monday put together a list of 10 stocks that have been big winners in the fall. These 10 S&P 500 stocks have beaten the market in each of the past five falls -- and have gained an average of 13%. Not too shabby, if you were able to pick those names six years ago and could forecast that outcome.
But I was reminded of a quote from the legendary speculator George Soros: "The usual bull market successfully weathers a number of tests until it is considered invulnerable, whereupon it is ripe for a bust." Maybe this fall, the stock market is ripe for a decline -- and we won't have a sixth year of gains for these stocks.
The current global business cycle expansion is the second-longest on record, I believe, so we are going to find stocks that have done well over the past five years. Unfortunately, successful investing is more about finding stocks that can do well going forward. Starting with a list of names that have done well in the past is just a filter to perhaps finding good investments, but not enough to tilt the odds in your favor, in my opinion. I looked over each of these stocks using my favorite indicators to see which ones might keep rising and which were vulnerable this fall. Here are the first five names.
In this daily chart of Acuity Brands ( (AYI) ), above, we can see a pretty impressive rally from a February low. The On-Balance-Volume (OBV) line moved up with the price action until July to August. Prices of AYI made new highs in July and again in August, but the OBV line has been unable to confirm the price gains this month.
In the lower panel of the chart, above, is the 12-day momentum study, which shows a bearish divergence -- higher highs in price but lower highs in momentum. The rally is slowing and the next decline could break the rising, 50-day moving average. Yes, AYI is in an uptrend, but a break below $260 would break the uptrend and the 50-day average.
We have a few extra lines on this daily chart of Tyson Foods ( (TSN) ), above. Despite of the extra lines, we can see an uptrend the past twelve months. Prices are above the rising, 50-day and 200-day moving averages, which is positive -- but that is not the whole story.
Overlaid on the price chart is something called Bollinger Bands. John Bollinger put bands that are two standard deviations above and below the 20-day simple moving average. The bands narrow when volatility dries up, and this tends to foreshadow a change in direction for the stock. With prices and momentum diverging over the past two months and volume diminishing the past three months, I would prepare for a price decline in the weeks ahead.
Mylan ( (MYL) ) has been in the news a lot lately, with everyone complaining about their price increase for EpiPens. MYL has made no progress over the past twelve months, and unless you were nimble enough to buy an October, February or May dip, you are probably underwater or sitting with a loss. Prices are below the 50-day and 200-day moving averages. The OBV line has weakened and the MACD oscillator is in a bearish configuration.
You might want to sit back and relax on a cruise, but you don't want to take a laid-back approach to investing. In this daily chart of Royal Caribbean ( (RCL) ), above, we can see supply and demand at work. Demand for RCL appeared at the same level -- at $65 -- in February and June, while supply has been coming out at lower and lower levels since late December. The slope of the 50-day and 200-day moving averages is bearish. The OBV line has declined along with the price action and momentum is not diverging from the price action. A break below $65 for RCL could put it in dry dock for an extended period of time, with targets of $60 and lower.
Constellation Brands ( (STZ) ) has been in a sustained uptrend for the past twelve months, with only shallow and brief corrections along the way. STZ is above the rising, 50-day average line, but a shallow dip and the line could be broken. The 200-day average line is pointed up.
The OBV line has been in a downtrend from a November high, and in a sideways trend since April. Volume has shrunk since late June, and momentum is diverging from the price action. STZ hasn't broken its uptrend, but we would recommend protecting profits if you own this stock.