Altria Group, Inc. (MO), the Marlboro cigarette maker, is setting up for a massive move following the release of its quarterly earnings report tomorrow morning. Based on the stock's price chart, shares could be in for a 20% swing in either direction in the coming weeks – and earnings are likely to be what sets it off.
Altria shares have been stuck in an ascending triangle pattern over the past few months, but a breakout is imminent. That's why this earnings announcement will likely be the starting point for the 20% move – if it doesn't all happen tomorrow when earnings are reported.
I track triangle patterns closely because of all the information it gives us. First, we know the expected move by simply taking the height of the pattern. With a high around $42 and the low at $32 in the triangle pattern, the expected move is $10 per share, or roughly 20% from the current price. That gives us an upside price target of $52 per share and a downside price target of $30 per share.
The hard part if figuring out which way the breakout will occur. I like to trade triangle patterns after the breakout. We miss out on some of the initial surge, higher or lower, but once the breakout occurs, we know the expected price target we can capitalize on. All you have to do is follow the key area of support (in green) and resistance (in red) to have confirmation of the direction.
However, there is a general rule of thumb for triangle patterns – they tend to be continuation patterns. That means the stock is expected to move in the same direction it was before the pattern formed. For Altria, the stock was heading lower before this period of consolidation.
Based on the ascending triangle pattern, we know to expect a large move in Altria stock in the coming weeks. While we are not sure which direction the breakout will be, the downside is the most likely price target at this point. With earnings tomorrow, this stock is set to break out of this pattern and begin its 20% price move after the earnings announcement.