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5 Toxic Stocks to Sell Before Bernanke Talk Tomorrow

Stocks in this article: A CLMT CCH ACGL SEMG

Calumet Specialty Products Partners

There's a similar setup shaping up right now in shares of Calumet Specialty Products Partners (CLMT). To be clear, the specialty petroleum product firm hasn't had the same year that Agilent has -- this small-cap name is up more than 50% so far in 2012. But despite the rally, there's another descending triangle shaping up from here. A break of support at $28 is the sell (or short) signal for this trade.

Typically, triangles are continuation patterns. That means that descending triangles typically come after a stock has already been moving lower. Even though CLMT's topping triangle isn't textbook, the trading implications are still the same. A downtrend in momentum adds some extra confidence to the CLMT trade. Since momentum is a leading indicator of price, the fact that it's dropping into negative territory now indicates that sellers are in control here.

Thinking about sellers is important -- after all, price patterns don't work because of geometry's magical pull on the market; they're just good ways of describing what's going on with a chart. Instead, patterns get their power from what's going on with buyers and sellers. In CLMT, support at $28 is a price level below which there's been a glut of buying pressure for shares. At the same time, though downtrending resistance indicates that sellers are in control at higher price levels. The breakdown below $28 tells us that any buyers who were hanging out at that level got taken out by increasingly eager sellers -- with buyers on defense, it makes sense to be a seller there...

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