5 Toxic Stocks to Sell Now

Equity Residential

First up is multi-family housing REIT Equity Residential (EQR). While the S&P 500 has rallied close to 15% year-to-date, EQR hasn't. It's actually down 126 basis points on the year -- or closer to break-even when the firm's dividend payout is factored in. And the latest setup in shares points to even lower ground for EQR.

>>5 Big Trades From the Financial Sector

That's because shares of Equity Residential are currently forming a head and shoulders top. The head and shoulders, which indicates exhaustion among buyers, is formed by two swing highs (the shoulders) that are separated by a higher high (the head). The sell signal comes on a move through the neckline level. For EQR, that happened last month. Even though shares pulled back this week, they're showing an inability to push through the neckline, a fact that indicates that now is a better time for shorts to enter new bets than for longs to buy.

The head and shoulders pattern is probably one of the most popular technical patterns out there among would-be traders, if only because of its name. But that doesn't make it any less valid; a recent academic study conducted by the Federal Reserve Board of New York found that the results of 10,000 computer-simulated head-and-shoulders trades resulted in "profits [that] would have been both statistically and economically significant."

Don't get caught on the other side of shorts on this trade.

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