Atmos Energy (ATO - Get Report) is forming a channel of its own -- it's just pointed in a different direction. For Atmos, the channel is moving sideways after this stock has been rallying from its late March lows. Basically, ATO is consolidating right now in a pattern called a rectangle; shares are treading water as investors figure out what to do next. Again, though, the fact that a channel has restricted price action helps us to find a trade in this stock.
At the top of the channel, we've got a resistance level at $36.75, and at the bottom, we've got horizontal support at $35. Essentially, we're waiting for a breakout through one of those prices to give us our trade signal. Typically, rectangles are continuation patterns, which means that they resolve in the same direction as previous price action. For ATO, that makes more upside a likely outcome in November.
That said, it's critical not to be early on this trade. $36.75 is our resistance level for a good reason -- it's a price that's holding a big glut of supply of shares. Until that supply gets absorbed by buyers, ATO can't move higher by definition.Wait for the breakout to happen for this to become a high-probability trade.
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