Oil logistics firm Tesoro Logistics (TLLP - Get Report) has built up an enviable business moving energy commodities around the country -- but for now, its stock price looks at risk of a big breakdown. Here's what to look for in this small-cap dividend payer.
Tesoro is forming a descending triangle, a bearish pattern that's formed by downtrending resistance above shares and horizontal support below them. Essentially, as TLLP bounces in between those two technical levels, it's getting squeezed closer and closer to a breakdown below support at $42. When that breakdown happens, it's time to flee from shares of TLLP.
With any technical pattern, it's critical to think in terms of buyers and sellers -- not shapes. After all, triangles, head and shoulders patterns and the like are a good way of describing what's happening on a chart, but they're not the reason why it's tradable. Instead, that all comes down to the supply and demand caused by those buyers and sellers.The horizontal support level at $42 is a place where a glut of buyers has been willing to step in and put a floor in the stock. A breakdown would mean that increasingly eager sellers have absorbed all of the excess demand of shares sitting at that level -- and without that floor in place, shares could fall much further than that. That's why it makes sense to sell TLLP on a push through $42.