Open Text

We're seeing a similar pattern in shares of Open Text ( OTEX). Like Pulte, this business software firm is forming an ascending triangle pattern, in this case with resistance at $57.50. And while OTEX isn't testing a breakout just yet, it's about a hair's breadth away from popping above that resistance level. When it does, traders have the buy signal for this stock.

Whenever you're looking at technical price setups, it's important to think in terms of buyers and sellers. After all, it's not magic or geometry that's causing these patterns to be tradable -- it's supply and demand.

The horizontal resistance level in OTEX is a place where sellers have previously been more eager to sell and take gains than buyers have been to keep buying. But uptrending support tells us that buyers do have some control over shares at lower levels. The breakout means that buyers were able to absorb all of the excess supply of shares that was sitting above $57.50. Without that price barrier, this stock should have a lot more room to run.

Just remember that it's critical to wait for the breakout to happen before buying.

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