Department store giant Macy's (M) is forming the exact same setup right now. Just like Home Depot, Macy's has a horizontal resistance level above shares right now (at $41) and an uptrending support level to the downside. So here too, we want to see a breakout above $41 before jumping on board this trade.
It's valuable to think about how this pattern works in real terms -- after all, patterns like the ascending triangle don't work because of magic or geometry. Instead, it all comes down to supply and demand in the market. The resistance level at $41 is a price where sellers have recently been more eager to sell and take gains than buyers were to buy. But a breakout above that level indicates that all of the excess selling pressure at $41 has been absorbed by increasingly committed buyers.
That's why it makes sense to buy a breakout through a resistance level. Momentum has been tightening over the course of this pattern, a fact that also points to a possible volatility squeeze for Macy's. That means that a sharper move is likely when a breakout does happen, so it'll pay to keep a close eye on shares. In this name, the 200-day moving average has been a better proxy for support -- that's where I'd keep a protective stop if and when Macy's breaks out.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV