Brasil Foods

A similar setup is taking place in shares of Brasil Foods ( BRFS) right now. Like BHP, shares of Brasil Foods have a strong horizontal resistance level that's acted as a "price ceiling" for shares in the past, and uptrending support acting like a "price floor." The resistance level to watch in this stock is $21.50; a breakout above that price is a buy signal.

Also like BHP, Brasil Foods has maintained an uptrend in RSI, a factor that tells us the upside momentum in shares remains intact.

With an ascending triangle, one important question to ask is why it works. The key is that resistance level above shares. Essentially resistance levels exist where there's a glut of supply for shares -- they're prices where sellers are more eager to unload their positions than buyers are to buy them.

In an ascending triangle, uptrending support tells us that buyers have control of shares below that key resistance level, and that we'll likely see a retest of resistance. A breakout is a buy signal because is shares can sustain a price above $21.50, we know that buyers have absorbed the excess supply at that price level and there's no longer that constraint on share price.

Until BRFS can hold above $21.50, however, this isn't a high probability trade.

BRFS shows up on a list of 10 BRIC Stocks for 2012.

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