From one cellular phone stock to another: Nokia (NOK - Get Report). Nokia has seen better days lately. Shares of the $10 billion firm have dropped like a rock in 2012, sliding 44.4% year-to-date as the firm's share of the phone market got eaten up along with its profitability. And now, a bearish setup in shares indicates that this stock's relief rally may be coming to an end.
That's because Nokia is currently forming a descending triangle pattern, a setup that's formed by horizontal support to the downside and downtrending resistance to the upside. Essentially, as NOK bounces in between those two technical levels, it's getting squeezed closer and closer to a breakdown below that support level at $2.40. When it does, traders have their signal to short this stock.I think it's valuable to think about what this pattern means in real-terms. After all, NOK's drop has nothing to do with triangles or any other geometric shape. Instead, it's all about what's going on with buyers and sellers. Support at $2.40 is a price where Nokia has historically been able to catch a bid it's a price below which there's a glut of demand for shares. But the downtrending resistance level in shares indicates that sellers have control of NOK at higher levels. For that reason, a break below support means that those increasingly eager sellers have absorbed the buyers at $2.40. When buyers are on the defensive, it's not a good time to be a shareholder.