These stocks are exhibiting chart patterns, and a breakout could move the price significantly. A chart pattern is when the price action of a stock (or other asset) takes on a specific shape. Chart patterns occur frequently and on all time frames. Before discussing the potential of the trading opportunities below, also consider the risks of chart patterns. False breakouts are common. The price moves out of the pattern, triggering a trade but doesn't move further, or reverses resulting in a loss. This is quite common. Because many chart patterns signals result in losing trades, it's important that the potential reward from a trade always outweigh the risk if the strategy is to be profitable.
Sally Beauty Holdings Inc. (SBH) has formed a large head and shoulders topping pattern going back to late 2014. In November and December the left shoulder formed, the head in March and the right shoulder in May through July. The breakout point for the pattern is between $30.50 and $30.17. The former is the neckline breakout price, and the latter is the June low. A stop loss can go above the July high of $32.41, and the target for the head and shoulders pattern is $25 (also see: How to Trade the Head and Shoulders Pattern).
Apollo Global Management, LLC (APO) is in a downtrend since the start of 2014. That downtrend paused between March and July 22 as the price moved sideways in a triangle pattern. On July 23 the price broke below triangle support ($20.93 to $20.78), indicating the downtrend is continuing. The price target for the breakout is $18.50 to $18.25. A stop loss could go above the July high of $22.61, although anywhere above $22 should give the trade enough room.
Fossil Group, Inc. (FOSL) is in a long-term downtrend and gapped lower on May 27. Since then it is moving sideways in a descending triangle pattern, with support at $68.55. Support was breached on July 23 as the price fell to $67.38. The breakout signals a move lower to $63.60, and a stop loss can be placed above the July 22 high of $70.87.
Hormel Foods Corporation (HRL) is in a long-term uptrend but is moving in a triangle pattern since March. Two false breakouts have already occurred during this pattern, one to the upside and one to the downside. Even with the false breakouts, new breakout areas can still be established. A rally above $58.40 breaks the pattern to the upside, and a move above the July high of $58.54 helps confirm. Upside breakout target is $63.23, with a stop loss below $57.20. A downside breakout occurs if the price drops below $56.50; a more aggressive entry is to short-sell if the price drops below the July 17 low of $57.20. Downside target is $51.67 with a stop loss above $58.54.
The Bottom Line
Chart patterns occur frequently, and when they break can signal the next trending move. It isn't always that easy though. False breakouts are common, and traders may draw patterns in slightly different ways, resulting in different profit targets and breakout points. That's fine, because as long as the overall profit expectation is larger than the risk, traders only need to win about 40% of their trades (or more) to produce a profit. Chart patterns can also be useful for analysis, telling you if a current position should be held or sold based what a breakout could do to the price.
The author has no positions in the stocks mentioned.