As bullish chart patterns go, the ascending triangle is a good one. Unlike the downward wedge, where a stock that’s trending down is hypothetically approaching a breakout, an ascending triangle anticipates a potential breakout while in a general uptrend.
The pattern forms when a stock has a consistent resistance level that doesn’t move over time, acting as a horizontal line at the top of the graph. Meanwhile, the stock’s support level continues to rise, with shares bouncing off of lows that keep increasing. As the horizontal resistance line converges with the rising support line, it forms a right triangle. Hence the name.
However, prior to that point of convergence, the stock very often will experience a breakout through resistance. Traders noting an ascending triangle will buy in with a price target of the entry price plus the vertical height of the triangle. The patterns typically last anywhere from a few weeks to a few months, and it’s typically signified by contracting volume in the pattern with an expansion of volume when the stock breaks out as confirmation of the breakout.
So, while it’s no guarantee, the potential of the breakout makes stocks in an ascending triangle a relatively appealing potential buy, regardless of whatever else is going on with the company. So, here are three stocks in an ascending triangle that currently have an average analyst rating of buy or better and feature a P/E ratio below 15.
Market Cap: $154.59 billion
P/E ratio: 12.83
Citigroup first hit its current resistance level of around $53.50 a share at the end of May, and it’s bounced off that ceiling four times since. The rising support level that forms this triangle started a month later.
HSBC Holdings ($HSBC)
Market Cap: $197.67 billion
P/E ratio: 12.37
This English global banking and financial services firm may be an example of why no technical pattern is a guarantee. The time frame of its triangle is almost identical to Citigroup’s, with resistance forming at about $57 a share, but since the start of December, HSBC has broken out downward. It crossed its 50- and 200-day moving averages in the process, showing a clearly bearish trend one wouldn’t normally expect from the triangle pattern.
Nam Tai Electronics (NTE)
Market Cap: $320.79 million
P/E ratio: 4.37
Nam Tai is an electronics manufacturer that provides products and services for a group of telecommunications and consumer electronics makers. It builds a number of components, including LCD panels and modules, flexible printed circuit boards, and thin film transistor display module. The company’s shares plunged almost 40 percent at the end of April after a disappointing earnings report, but afterwards it formed an ascending triangle with resistance at about $8.50 a share. However, like HSBC, the company’s fallen below its support level since the start of December, potentially negating the positive chart pattern it was previously in.