Pharmaceutical firm Hospira ( HSP) hasn't done much since July; shares have been trading sideways for months now. But even though Hospira hasn't really participated in the recent rally, there's still a trade to be made here.
Hospira is currently forming a rectangle pattern, a price setup that's formed by a horizontal resistance level above shares at $42 and another horizontal support level down at $38.50. The rectangle gets its name because it essentially "boxes in" shares. The high-probability trade comes when HSP exits its channel -- a move through $42 is a buy signal, whereas a drop below $38.50 is a signal to sell.Whenever you're looking at any technical price pattern, it's critical to think in terms of those buyers and sellers. Rectangles, triangles, and other pattern names are a good quick way to explain what's going on in a stock, but they're not the reason it's tradable. Instead, it all comes down to supply and demand for shares. That $42 resistance level, for example, is a price where there has been an excess of supply of shares; in other words, it's a place where sellers have been more eager to step in and take gains than buyers have been to buy. That's what makes a breakout above it so significant -- the move means that buyers are finally strong enough to absorb all of the excess supply above that price level. Sit on the sidelines until HSP breaks outside of the rectangle.