CubeSmart (CUBE), a self-storage real estate investment trust (REIT), has formed one of my favorite stock market patterns – an ascending triangle. In technical analysis, triangles are the easiest patterns to spot. But they are my favorite pattern because they give clear price targets to the upside and downside.
In the case of CubeSmart, the triangle pattern is calling for a 15% move in the coming weeks. An ascending triangle has a rising support trendline, in green, and a horizontal resistance level, in red. As these two trends converge, it means that a breakout is imminent.
Sometimes it will go to the point of forcing the stock to break out one way or the other, but oftentimes the breakout comes sooner. That's why now is the perfect time to position for the next major move in CubeSmart shares.
To get an expected move from a triangle pattern, you simply take the height of the pattern and add it to the breakout point. The height of CubeSmart's ascending triangle is $5 per share. From current prices, a $5 move is 15% – to the upside or downside.
If prices break out higher, they will shoot for $38 per share in quick fashion. But the downside target is the same 15% move, putting a price target of $28 per share on the stock.
However, knowing that ascending triangle patterns are also continuation patterns, we can expect an upward breakout. Continuation patterns mean the stock typically continues in the same price direction it was before the pattern formed. In this case, the stock has been trending higher for years, which means that an upward breakout is likely.
The Bottom Line
CubeSmart shares are set to break out of this ascending triangle pattern in the coming weeks. When this occurs, a rather quick 15% move will be in store. Since we know that triangle patterns are usually continuation patterns, we can expect the breakout to be to the upside.