Autohome Inc. (ATHM), a Chinese internet content company, is set to make a huge 30% run in the coming weeks. When you look at its price chart, the stock is trading in a clear ascending triangle pattern.
This is where the stock has a rising support line, in green, and a horizontal resistance level, in red. As investors bid the stock higher, it keeps running into resistance at around $91 per share. It has hit it this level four times, and maybe for the fifth time right now, and the stock was pushed lower.
However, this green support line is rising, which indicates that investors are still bullish on Autohome stock, scooping up shares at higher prices than they were falling to before. Now that the stock has consolidated in 2020, a major breakout is due in the coming weeks.
Once the stock either climbs above the red resistance line or breaks below the green support line, you’ll have a clear path to a 30% move in the stock. We just don't know which direction it will go yet.
The expected price move after a triangle pattern is formed is simply the height of the pattern – $27 in this case. You take the high in the pattern, $91, and the low, $64, and calculate the difference.
When the breakout occurs, you can add the $27 at the point of the breakout to get a price target. If the breakout is to the upside, the stock is expected to climb to $118 per share, or 29% higher. Depending on where the breakout on the downside occurs, you are still looking at roughly a 30% drop in the stock.
This is a stock that hasn't gone anywhere for years, peaking in 2018. It has seen its share of volatility since then. But this latest consolidation period forming the ascending triangle pattern gives us a clear shot of the stock either back to those highs or plunging to a new 52-week low.
The Bottom Line
Autohome stock is inching closer to a major breakout that will either send shares soaring 30% to near record highs or cause shares to fall to new 52-week lows. The ascending triangle pattern gives us the clear resistance and support levels to watch so that we can hop on this trend as it develops.