5 Toxic Stocks to Sell This Week: Must-See Charts

BALTIMORE (Stockpickr) -- The U.S. market rebounded in a big way yesterday. Thursday's 1.26% rally in the S&P 500 was the sixth-biggest single-day gain for the big index so far this year. But before you break out the champagne, remember that context matters here.

After all, while Thursday's were solid, they came during the same week as two of the three biggest losing days of 2015. The up days may be bigger here, but the down days are too. That tells us one simple thing: Volatility is on the rise again. And since volatility is typically associated with down markets, it's a little early to celebrate the big gains that the S&P booked yesterday.

When markets get turbulent, it isn't owning the right names that matters. Instead, it's not owning the wrong names that makes the difference between the investors who beat the market and the ones who get pummeled.

That's why we're turning to the charts for a technical look at five big stocks to avoid (or short) in March.

Just to be clear, the companies I'm talking about today aren't exactly junk. By that, I mean they're not next up in line at bankruptcy court. But that's frankly irrelevant; from a technical analysis standpoint, sellers are shoving around these toxic stocks right now. For that reason, fundamental investors need to decide how long they're willing to take the pain if they want to hold onto these firms in the weeks and months ahead. And for investors looking to buy one of these positions, it makes sense to wait for more favorable technical conditions (and a lower share price) before piling in.

For the unfamiliar, technical analysis is a way for investors to quantify qualitative factors, such as investor psychology, based on a stock's price action and trends. Once the domain of cloistered trading teams on Wall Street, technicals can help top traders make consistently profitable trades and can aid fundamental investors in better entry and exit points.

So, without further ado, let's take a look at five "toxic stocks" you should be unloading.

Nuance Communications

Up first is Nuance Communications (NUAN) - Get Report, a mid-cap software stock that's had a rough run of it in recent months. In the last half-year, NUAN has shed more than 13% of its market capitalization, rolling over that the same time that the S&P 500 was actually gaining steam. The thing is, the selling doesn't look like its over yet in NUAN.

Nuance is currently forming a descending triangle pattern, a bearish price setup that's formed by horizontal support down at $13.50 and downtrending resistance to the upside. Basically, as NUAN bounces in between those two technically important price levels, it's been getting squeezed closer and closer to a breakdown through that $13.50 price floor. When that happens, we've got a new sell signal in NUAN.

Momentum is the side-indicator to watch in Nuance. 14-day RSI, our momentum gauge, has been in a downtrend since shares topped back in June, an indication that long-term buying pressure continues to wane in this stock. If shares violate their $13.50 support level, you don't want to own Nuance any more.

21Vianet Group

We're seeing the exact same price setup in shares of Chinese data center stock 21Vianet Group (VNET) - Get Report. This stock's share price got pummeled last fall when fraud allegations made the headlines, and shares haven't been able to catch a meaningfully higher bid ever since. The breakdown level to watch here is $15. if shares violate that line in the sand, look out below.

Why all of the significance at $15? It's not magic. Whenever you're looking at any technical price pattern, it's critical to keep buyers and sellers in mind. Patterns such as the descending triangle 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 21Vianet's shares.

That $15 level in VNET 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 -- it means that sellers are finally strong enough to absorb all of the excess demand at the at price level. Keep a close eye on that $15 price.

IHS

You don't have to be an expert technical trader to figure out what's going on in shares of $8 billion information services stock IHS (IHS) -- the price action on this chart is about as straightforward as they get. Since this past fall, IHS has been bouncing its way lower in a downtrending channel, selling off to the tune of 20% from its August highs.

The downtrending channel in IHS is formed by a set of parallel trend lines that identify the high-probability range for IHS to stay stuck between. And with shares making another move off of resistance in March, we're seeing another sell signal. Every time this stock has tested the top of the channel, it's given shareholders a great opportunity to get out.

Relative strength, at the bottom of the chart, is an extra red flag in IHS. That's because our relative strength line has been in a downtrend of its own over that same stretch, an indication that shares aren't just losing steam here, they're also underperforming the rest of the market. As long as our relative strength downtrend stays intact, IHS will keep underperforming.

Jacobs Engineering Group

Jacobs Engineering Group (JEC) - Get Report is another textbook downtrending channel trade -- the only difference is that JEC is much closer to its ideal "sell zone" at the top of its channel than IHS is. Here again, though, if you own shares, you still want to wait for a bounce lower before you sell. Why wait?

Waiting for that bounce lower before clicking "sell" is a critical part of risk management for two big reasons: it's the spot where prices are the highest within the channel, and alternatively it's the spot where you'll get the first indication that the downtrend is ending. Remember, all trend lines do eventually break, but by actually waiting for the bounce to happen first, you're confirming that sellers are still in control before you unload shares of JEC.

For buyers looking for an entry opportunity in this mid-cap service provider, it's important to wait for the most recent swing high at $45 to get taken out by buyers first. Recently, JEC has made a few lows beyond the lower bound of its price channel, an indication that volatility is building here. Don't try to "bottom tick" shares. Wait for buyers to take control before you even think of going long. JEC still looks toxic now.

Park National

Last up on our list of toxic-looking stocks is small-cap banking stock Park National (PRK) - Get Report. Park National has actually had a pretty good run lately, up almost 15% since the middle of the summer. But now might be a good time to think about taking some gains on PRK. Shares are showing traders a textbook reversal pattern right now.

PRK is currently forming a head and shoulders top, a setup that indicates exhaustion among buyers. The setup is formed by two swing highs that top out at approximately the same level (the shoulders), separated by a higher high (the head). The sell signal comes on a move through PRK's neckline at $78. If $78 gets violated in PRK, then prior support at $68 becomes the downside target for shares. That's a 13% bear move.

Momentum adds some extra concern to this trade too. Our RSI line made lower highs on each of the price peaks in PRK, even while price moved higher during this stock's head. Even though the primary trend is still up for now, it's a very good idea to keep a close eye on that $78 neckline level in March. PRK is looking top-heavy here.

Author had no positions in stocks mentioned.