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5 'Toxic Stocks' to Sell in 2013

Stocks in this article: MRK NRG ATVI FNV BBY

Franco-Nevada Corp.

We're seeing the same setup in shares of $8 billion gold company Franco-Nevada Corp. (FNV). Like Best Buy, Franco-Nevada is forming a descending triangle with a downtrending resistance level above shares and horizontal support below them. In FNV's case, the support level to watch comes in at just under $56; a fall below that price is the sell signal for this stock.

One big difference in FNV's case is the fact that this pattern is coming in at the top of an uptrend, rather than after a selloff. While that makes the triangle in FNV less textbook than the one in Best Buy, it's critical to remember that geometric patterns are a good way to describe what's going on in a pattern, they're not the reason why trades work. Instead, patterns get their power from what's going on with buyers and sellers (i.e. supply and demand).

In FNV, support at $56 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 $56 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.

A downtrend in momentum adds some extra confidence to this 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.

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