China Telecom

$41 billion Chinese telco China Telecom ( CHA) is the largest fixed-line operator in the People's Republic and one of the country's largest broadband and mobile service carriers. But that scale isn't sparing CHA from the bearish technical setup that's been forming in shares.

Right now, CHA is forming a descending triangle, the bearish counterpart to the ascending triangle pattern that's signaling a buy in Diageo right now. The descending triangle is formed by a horizontal support level that acts as a sort of floor for shares and a downtrending resistance level pushing lower overhead. The breakdown below support -- at $51 for CHA -- is the sell (or short) signal for shares.

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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 $51 is a place where a glut of buyers has been willing to step in and put a floor in the stock. The breakout means that increasingly eager sellers have absorbed all of the excess demand for shares sitting at that level -- and without that barrier in place, shares could drop much further than that. I wouldn't recommend owning CHA if $51 gets taken out.

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