Cracker Barrel Old Country Store

It's been a strong year so far for Cracker Barrel Old Country Store ( CBRL), a small-cap restaurant stock that's been getting substantial attention from investors this week. So far in 2012, shares of CBRL have rallied more than 25%, pulling ahead of the rest of the restaurant industry by a huge margin.

Cracker Barrel is another ascending triangle trade this week. Resistance comes in at $64.50 for this stock, triggering a buy signal if shares can manage to close above that price.

Just so we're clear, there's nothing magical about "triangles" when it comes to a stock's price chart. Instead, it's what the triangle tells us about supply and demand that's important for CBRL's trading prospects. Resistance at $64.50 is a place where CBRL has been hitting its head on a glut of supply of shares, in other words, a spot where sellers have been more eager to sell and take gains than buyers were to buy. That's why shares of CBRL have reversed off of $64.50 each of the last four times they've tried to move higher.

In an ascending triangle, the uptrending support level below resistance adds an important piece of information to our view of CBRL: It tells us that buyers are in control of shares at lower levels. A breakout above resistance means that buyers have won out, and managed to absorb all of the excess supply above $64.50.

With that price barrier taken out, buying becomes the high probability trade in this stock. That's why we buy breakouts.

After CBRL breaks out, I'd recommend placing a protective stop just below support at the 50-day moving average.

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