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TheStreet Open House

5 'Toxic Stocks' to Sell in 2013

Merck

Last up on our list of toxic names is Merck (MRK). I first looked at Merk a couple of weeks ago, when this stock was just starting to look bearish. Now that the trade has triggered, it's worth taking a second look today.

At the time, Merck was forming a head and shoulders top, a price pattern that indicates exhaustion among buyers. The head and shoulders is formed by two swing highs that top out around the same level (the shoulders), separated by a bigger peak called the head. The late December breakdown below the pattern's support level, called the neckline, triggered the sell signal for this stock.

Since then, shares have been pulling back to the neckline in a move that might look positive at first glance. In reality, though, a pullback is just a good second entry point for short sellers more often than not -- it gives shares a chance to test newfound resistance at the neckline. If you're on the fence about owning Merck here, I'd recommend against it. This stock is holding up resistance at the neckline, and it's got extra price barriers at $45 and $48, the right shoulder and the head respectively.

Merck still looks toxic at this point.

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

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Jonas Elmerraji is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.
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