Shares of the laptop, desktop, and printer giant HP Inc. (HPQ) are trading in a familiar pattern for the stock market. After the coronavirus-related selloff, many stocks have rebounded, with some moving to all-time highs, but others, like HP, have failed to rebound much at all.
Instead, HP stock has stagnated well below its recent highs. This has created is an ascending triangle pattern, and it doesn't bode well for shares of HP.
Triangle patterns are great to follow because they tell us a lot about the stock. First, a triangle pattern tells us which direction we can assume the breakout will occur. We know this because triangle patterns are usually continuation patterns. That means the stock generally heads in the same direction it was heading in before the pattern formed.
For HP stock, that direction was lower. Take a look:
The peak on the price chart is around $23 per share in late February. Then the pandemic hit, and shares plunged to $12. This decline was what most stocks experienced during that rapid selloff.
Then the rebound followed, but HP stock retraced only about 50% of the decline. That's a key level going forward, and it has been the resistance point in the ascending triangle pattern (in red). The rising trendline, in green, highlights the key support level for the price pattern.
Sticking with the assumption that triangle patterns are continuation patterns, I'd expect the stock to fall to a price target of $11.25, or a 32% drop from current prices, in the coming weeks. The measured price height of the triangle pattern, about $5.40, is the expected move.
Once the clear support and resistance levels are broken, then you know how to trade the stock. Right now, the expected move is set up for the stock to surge, or plunge, by $5.40. That's roughly a 30% move to the upside or downside.
It could go either way, even though the pattern says to expect HP stock to head lower. After the resistance or support level is broken, that's when you want to capitalize on the rest of the expected move playing out.
The Bottom Line
HP stock is stuck in an ascending triangle pattern at the moment. While the pattern suggests that the stock will head lower, hitting a price target of $11.25, I know to wait until we get a clear break of the support or resistance levels before placing a trade. Then we'll have a chance to capitalize on the expected 30% move, whether it's up or down.