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TheStreet Open House

5 Toxic Stocks to Sell Before Bernanke Talk Tomorrow

SemGroup Corp.

Last up is SemGroup Corp. (SEMG), a midstream oil servicer that's showing off one of the more well-known setups out there. SemGroup is forming a head and shoulders top, a pattern that indicates exhaustion among buyers -- it's formed by two swing highs that top out at around the same level (the shoulders), that are separated by a higher high (the head). A breakdown below the neckline at $35 is the sell (or short) signal for SEMG.

There's a lot of poor anecdotal evidence surrounding patterns, and this particular setup has a lot of detractors because of its name and popularity. But don't fall into the trap of ignoring it just for that.

The head and shoulders may be a popular pattern, but the research shows that it's still a valid one: 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." Just remember that the trading signal only comes if SEMG moves below that neckline level.

To see this week's trades in action, check out the Technical Setups for the Week portfolio on Stockpickr.

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At the time of publication, author had no positions in stocks mentioned.

Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to TheStreet. Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily, and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation.

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