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TheStreet Open House

5 Huge Stocks Set to Slingshot Higher

Capital One Financial

A similar setup is forming in shares of Capital One Financial (COF). While the pattern in Capital One is far from a textbook ascending triangle, it's a good example of why a trading pattern is less important than the factors that cause that pattern.

In other words, we've got a long-term horizontal resistance level at $58 and uptrending support below COF's current price -- so that is a very tradable setup. As with MSFT, the buy signal comes on a push above resistance.

>>10 Bank Stock Value Plays

It's useful to talk about what's going on in COF in real terms. That resistance level at $58 is a price above which there's a glut of supply (think selling pressure) for shares of this stock. That's why buyers' attempts at pushing shares higher have been rebuffed every time they've hit that level; increasingly ambitious sellers want to take gains, and they have been absorbing any buying pressure at $58.

But the uptrending support indicates that buyers do have some control of shares right now. The breakout above $58 means that the glut of supply of shares got absorbed by buyers and that barrier to upside in COF is gone.

That's why it's critical to wait for the breakout before becoming a buyer.

Momentum, measured by the 14-day RSI, adds some extra evidence for this setup. The downtrend in support broke in early June, and momentum has been trending higher ever since. Because momentum is a leading indicator of price, that's a very good thing.

I also featured COF recently in " 5 Financial Stocks Hedge Funds Love."

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