Ultimate Software (ULTI) got pounded in August and has never recovered, though it tried to bounce. Early September saw this selling continue as the markets moved upward, a major divergence shown in the relative strength index (RSI) (top pane, below).
Momentum indicators are weak and the Moving Average Convergence Divergence (MACD) is still on a sell signal. Sell any rallies toward the 200-day moving average.
Shares of Evolent Health (EVH) show a very defined downtrend channel, a series of lower highs and lower lows after getting blasted in early August. Being at the top of the range here, EVH should come back down and test the lower part of the channel. Resistance is clear, according to the RSI.
Ryerson Holding (RYI) faces severe resistance at the current price and slightly above at the 200-day moving average. The MACD is about to roll over to a sell signal, and while the indicators are moderately bullish we have price action that is dictating the chart. It's not breaking out. Sell any drop.
Shares of BBVA Banco Francés (BFR) have been rising this month with the other euro and smaller banks, but we can see the stock has hit resistance and there is a good chance it heads lower, at least the 200- or 50-day moving average. Volume has started to swell as the stock came in this week as indicators are overbought.
Scholastic Corp. (SCHL) fell hard last week on big volume, the victim of poor earnings. The recent rally is clearly a bear flag on the chart, and while it is still in the gap we should see this roll back over when the short-covering has subsided. Selling into the rally would be a proper move here.
The following commentary was sent subscribers of Trifecta Stocks on Sept. 29. Click here to learn more about this model portfolio and trading ideas service.
Trifecta Stocks is a long-only model portfolio, but we are anxious to give our subscribers insight into stocks that may pose interesting investing opportunities on the short side.
Using recent actions and grades from Quant Ratings and layering on technical analysis of the charts of those stocks, we will identify five names each Friday that look bearish. While we will not be weighing in with fundamental analysis, we hope this piece will give investors interested in stocks on the way down a good starting point to do further homework on the names.
-- Bob Lang and Chris Versace are co-portfolio managers of Trifecta Stocks.