Longtime Chaikin PowerFeed readers know I’m a data junkie…
I can’t help myself.
It all started back in the mid-1960s. Back then, I had just started as a broker. And one day, a colleague introduced me to George Chestnutt’s financial writing…
Chestnutt’s work gave me access to the best data available at the time. And before long, my life’s work revolved around collecting, parsing, and using data to help investors succeed.
Now, more than five decades later… I’m still always looking at the data.
Today, the data tells us that the broad market is entering new territory. The Federal Reserve is softening its posture on inflation. And I’m seeing more “bullish” technical setups.
But that doesn’t mean every stock is flashing a green light…
In fact, one basket of stocks is especially dangerous right now. I like to refer to these 27 stocks as “portfolio landmines.” If you come across them, they could blow up your portfolio.
And in this essay, I’ll show you exactly why…
My colleague Pete Carmasino explained the idea of “short covering” earlier this week. In its simplest form, it’s the act of buying shares to close a bet against a stock.
In other words, when a “short” trade goes against someone, they need to buy shares to exit the position. That pushes the stock higher in what the industry calls a “short-covering rally.”
Using the Power Gauge, I’ve found 27 stocks that look like they’re in this position today…
These stocks all earn “bearish” or worse rankings in the Financials and Earnings categories. And they’ve all consistently lagged behind the benchmark S&P 500 Index.
But over the past month, they’ve all beaten the S&P 500 by 10% or more.
All this data leads us to a critical takeaway…
These rallies might seem impressive at first. But this outperformance is weak on a technical level. And in turn, these 27 stocks are all landmines that could blow up your portfolio.
Now, it wouldn’t be fair to my paying Power Gauge subscribers to share the whole list. But I do want to mention a couple of popular names to avoid at all costs right now…
The Power Gauge currently ranks beleaguered automaker Lucid (LCID) as “very bearish” overall. And as you can see, its full report is about as “bearish” as it gets…
And another stock that might surprise you is sports-betting empire DraftKings (DKNG)…
It’s currently rated as “very bearish” in the Financials category and “bearish” in the Earnings category. However, just like Lucid, it’s easily outperforming the S&P 500 in recent weeks.
Folks, the stock market is rallying so far in 2023…
The S&P 500 is up around 6%. And the tech-heavy Nasdaq Composite Index is up about 13%.
As more folks cover their short positions, some of last year’s worst performers are moving sharply higher. But many of these stocks have weak earnings outlooks and poor financials.
They’re nothing more than portfolio landmines.
In fact, one of these landmines just blew up on investors…
Financial-services company Affirm (AFRM) also popped up on our screen. The company reported dismal earnings this week. And in response… its stock cratered 17% yesterday.
So if you’re holding shares of Lucid or DraftKings, capitalize on their recent rallies and get out before it’s too late. Then, put your money to work in “bullish” or better stocks.
Over the years, we’ve built an incredible team of analysts at Chaikin Analytics. And as you know, we just added Briton Hill. I’m thrilled to have his unique perspective on my team.
But even with all these brilliant idea generators… I’ll always look at the data.
Good investing,
Marc Chaikin
