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5 Toxic Stocks to Dump Before 2013

Stocks in this article: ATVI ALB SRE CIE GFI

Cobalt International Energy

A similar setup is shaping up in shares of another commodity stock: oil exploration and production firm Cobalt International Energy (CIE). Just like Gold Fields, Cobalt is forming a descending triangle with downtrending resistance level and horizontal support that comes in at $20 in this case.

When you look at a technical setup like the descending triangle, it's important to think about what this price action means in real terms. After all, triangles and other geometric shapes don't have some magical powers on a stock chart, they're just easy ways of describing what's going on. In this setup, what's going on is $20 is a price below which there's a glut of demand for CIE; it's a place where buyers have historically been more eager to jump in and buy shares than sellers have been to keep selling. That said, downtrending resistance means that sellers are in control at higher levels, so a break below $20 means that those increasingly eager sellers have absorbed all of that extra demand below $20.

That's why a breakdown below support is a sell signal.

Momentum adds some extra evidence to this setup -- RSI has been in a downtrend since late June. Since momentum is a leading indicator of price, that doesn't bode well for people who own CIE.

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