Public Service Enterprise Group Incorporated (PEG), a Northeast-based energy company, is trading in one of my favorite stock market patterns – the ascending triangle. These patterns are common today with the uncertainty in the market.
Triangle patterns are periods of consolidation for a stock as investors take bets on which way the breakout will occur. But with the unusual market we have had in 2020, there's more investors than ever that are unsure about what to expect next. And for that, these patterns become increasingly useful.
A triangle pattern tells us three important things about a stock – the key levels to watch, the expected move, and the potential breakout direction. For Public Service Enterprise Group, this pattern is calling for a 35% price move to the upside or downside. Take a look:
Those price targets are created by taking the height of the pattern from the starting point of the two trendlines, which is roughly $20 per share. Then we can add it or subtract it to the potential breakout point to get our expected price targets. However, the red resistance line at around $55 per share and the rising support line on the chart are the two key areas to watch.
Taking a trade within the triangle pattern is a huge risk. We simply don't know which way the breakout will occur. A rule of thumb is that these are continuation patterns, but this stock has been rising for years before falling just recently. If we stick with that, we'd expect the stock to break out to the downside.
But as you can see on the chart, the level that the stock looks closest to breaking out of is the upside, testing that key resistance level four very strong times. Once this level breaks, it doesn't matter if the price expected to head lower – the stock will surge in the direction of the breakout. And that's you want to be prepared to trade it.
The Bottom Line
Shares of this energy giant are set up to surge or plunge by more than 30% in the coming weeks. We know the key levels to watch in Public Service Enterprise Group – we just have to be patient and play the trend once the breakout occurs.