Danger Zone

To identify potentially dangerous stocks, I look for names that are heavily owned by institutions, that sell at high multiples to earnings and that are up a lot over the past year. These shares are usually priced for perfection, and anything less will send investors heading for what will quickly become an overcrowded exit.

Similar to all screens this is not a precise timing signal. Much of the time these stocks will keep going up for some time after making the list. Stocks such as Ulta Salon (ULTA) and Simon Property Group (SPG) have been on the list for several months as their share prices have continued to move higher. If you look at the momentum stock busts so far this year, many -- including Lululemon (LULU), Green Mountain Coffee Roasters (GMCR), Netflix (NFLX) and even Starbucks (SBUX) -- were on the screen before their downward spirals. The stocks on the danger list look very similar to other stocks before they collapsed, causing a permanent loss of capital....505 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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