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TheStreet Open House

5 Toxic Stocks to Sell Now

Stock quotes in this article: RF, EQR, COST, VRSK, BCE

Costco Wholesale

I like Costco (COST). I'm not just talking about the smorgasbord of samples in the aisles and the tanker containers of shampoo they sell -- Costco is attractive from a fundamental investment standpoint too. But even though I like it, it's toxic for shareholders right now. Here's why.

>>5 Big Stocks to Trade for Gains

This month, Costco triggered a double-top pattern, a reversal setup that marks the end of the uptrend that this stock has enjoyed for all of 2012. As the name implies, a double top occurs when a stock hits two swing highs at around the same price level. The sell signal comes when shares fall through the swing low that separates the two tops, and that happened for Costco last week.

Even though Costco has some attractive fundamental attributes, this stock was hardly cheap from a valuation standpoint. Instead, it was a momentum name. That means that it can fall significantly before it falls into "cheap" territory -- all the more reason for fundamentally inclined investors to keep a close eye on the technicals right here.

At this point, with the double-top triggered, COST looks positioned to underperform. I wounldn't recommend being a buyer here.

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