Keep Your Distance From These 2 Small-Caps

Dycom Industries, Inc. (DY) and Neurocrine Biosciences, Inc. (NBIX) are among the small-cap stocks positioned to lose

Jan 12, 2016 at 10:49 AM

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The Russell 2000 Index (RUT) has sold off sharply in the new year, down 7%, and has been flirting with bear-market territory. A struggling biotech sector certainly isn't helping the case for small-caps. And while a handful of technical levels could serve as support for RUT, a descent to 1,030, 1,020 or even 1,000 certainly isn't out of the question.

Making matters worse, small-caps continue to be cheered on Wall Street. Below, Schaeffer's Senior Quantitative Analyst Rocky White put together a list of some of the most overloved RUT stocks, each of which has received a "buy" rating from at least three-quarters of covering analysts. Note that the lion's share of these names have pulled back in the past 21 trading days, potentially paving the way for downgrades.

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Take telecom construction issue Dycom Industries, Inc. (NYSE:DY) as an example. While the shares have more than doubled year-over-year to trade at $71.81, things haven't been pretty of late. The stock has been in retreat mode since its late-November record high of $90.82, taking out previously supportive levels like its 80- and 100-day moving averages.

In fact, the shares are now poised to close below their 160-day trendline for the eighth time in the past 10 sessions. Prior to this stretch, DY hadn't breached this level since December 2014. Suffice it to say, a lasting violation of the 160-day could be a bad omen going forward, and could spur analysts -- 86% of which sport "strong buy" recommendations -- to downwardly revise their opinions on Dycom Industries, Inc.

It's a similar set-up for biotech Neurocrine Biosciences, Inc. (NASDAQ:NBIX). While the shares are up 4.7% at $46.71, they've fallen off a cliff in 2016 -- already down over 17%. What's more, the stock is testing its 50-week moving average for the second straight week, and a decisive move south of this trendline could spell additional losses ahead.

Potentially making matters worse, all eight analysts tracking NBIX sport "strong buy" recommendations. As such, the stock is highly vulnerable to future downgrades, which could exacerbate selling pressure on Neurocrine Biosciences, Inc.

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