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5 Toxic Stocks That Are Poisoning Your Portfolio

British American Tobacco

Up first is British American Tobacco (BTI), the $100 billion ADR that owns cigarette brands such as Dunhill, Lucky Strike and Pall Mall. BTI hasn't been a strong performer so far in 2013 -- in fact, shares have done a whole lot of nothing since the calendar flipped over to the new year. But that's not why this stock looks toxic. Instead, it comes down to the long-term setup in shares.

>>4 Reasons to Buy Stocks in 2013

British American Tobacco has been forming a descending triangle pattern for most of the last six months as shares bounced between a trend line resistance level to the upside and horizontal support at $100 below shares. A breakdown below support is the sell signal for BTI.

With any technical pattern, it's critical to think in terms of buyers and sellers -- not just 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 $100 is a place where a glut of buyers has been willing to step in and put a floor in the stock. It's not incidental that support comes in at a round $100. That's a big psychological price for investors, and it stands to reason that bids would start falling off if shares fall below it. 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.

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