With the S&P 500 gapping to a new high on May 27, and closing the day up 0.61%, a large contingent of stocks are moving higher. Not all those stocks are near potential entry points though. Triangle chart patterns provide a way to get in when a move is potentially starting. These four stocks just broke out of triangle chart patterns and provide upside targets as well as defined stop levels.
Actavis (NYSE:ACT) broke out of an ugly triangle pattern on May 22; based on the height of the pattern (rounded down), added to the breakout point, the target is $244. A stop loss goes below $197. Movement has been more volatile in the stock since late February, and more choppy as well. One risk is that the price continues to see-saw without making a definitive move higher. The reward to risk is close to 2:1, and could improve if buying on a pullback (if it occurs) to the original breakout point near $208.
American Express (NYSE:AXP) surged 2.94% on May 27, breaking a triangle pattern. The pattern provides a target near $99, with a stop below $84.50. A pullback, if it occurs toward the breakout point near $89, provides a more attractive risk to reward ratio. There is a resistance area between $93.50 and $94.50 - the location of two swing highs this year - which needs to be monitored. Given the rising highs and overall uptrend, the resistance area is likely to be surpassed, but if the price fails to move through there, taking an early profit is an option. Longer-term, the break of this large triangle signals a major wave higher which could take the price beyond $105.
BB&T (NYSE:BBT) isn't really breaking out of a chart pattern, but the set-up is nice none the less. The price recently bounced off the the same area it bounced off in February, broke above a short-term downward trendline and, if it moves above $38.30, will create a short-term higher-high. Initial target is $40, in case this turns into a head and shoulders topping pattern. If the price continues toward $41.04, the uptrend is likely continuing, with a target of $42. A stop can go below the recent low at $36.38.
Bank of New York Mellon (NYSE:BK) hit a stiff wall of resistance just below $36 in both January and March. In April the price declined, but created a higher swing low in price, showing buyers are still present in force. Since the April low, the price has been moving choppily higher, but based on a recent triangle breakout could be ready for a more convincing move. The triangle target is $37.50, with a stop below $33.60. Once again, watch the $36 level. If the price falls off that level, taking an early profit may prove prudent. The flip side is that slightly higher highs and rising lows indicate continued buying pressure and an eventual breach of the resistance level.
The Bottom Line
These four stocks are in overall uptrends and recent chart pattern breakouts signal another advance. Chart patterns are typically traded by entering at or near the breakout point, with a stop just below the pattern. The uptrend indicates that the price should be able to overcome resistance, but there are not guarantees. If trading these, or other patterns, keep position size in alignment with account size so that a single loss doesn't significantly draw down account capital.