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TheStreet Open House

Toxic Stocks: 5 Charts to Sell

MGM Resorts International

MGM Resorts International (MGM) is another name that's been riding momentum highs in recent months. Since August, shares of the casino resort operator are up more than 55%. Shares even added more than 4% to their gains yesterday. But MGM is starting to look "toppy" in February.

MGM is currently forming a double top, a reversal pattern that's formed by two swing highs that top out at approximately the same level. MGM's second top isn't completely formed yet, but that doesn't change how to trade it. A breakdown through support at $23 is the signal that buyers have vacated shares.

Whenever you're looking at any technical price pattern, it's critical to keep buyers and sellers in mind. Triangles and double tops are a good way to quickly describe what's going on in a stock, but they're not the reason it's tradable. Instead, it all comes down to supply and demand for shares.

That horizontal $23 support level in MGM is the spot where there's previously been an excess of demand for shares; in other words, it's a price where buyers have been more eager to step in and buy shares at a lower price than sellers were to sell. That's what makes a breakdown below support so significant. The move means that sellers are finally strong enough to absorb all of the excess demand at the at price level. So if MGM slips below $23, more downside is the high-probability trade.

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