Hostess Brands, Inc., a packaged food company, focuses on developing, manufacturing, marketing, selling, and distributing fresh sweet baked goods in the United States. The company operates in two segments, Sweet Baked Goods and Other. Its principal product lines include Twinkies, Zingers, Donettes, coffee cakes, cupcakes, cinnamon rolls, Ding Dongs, honey buns, fruit pies, Sno Balls, mini muffins, Chocodiles, Ho Hos, brownies, Suzy Qs, bread and buns, danishes, jumbo muffins, iced cookies, eclairs, and madeleines.
Take a look at the 1-year chart of Hostess (NASDAQ: TWNK) below with my added notations:
TWNK has created a common chart pattern known as a symmetrical triangle. Combining a down trending resistance (red) with an up trending support (green) forms the triangle pattern. As the support and resistance converge on each other the pattern is created. Since there is no true way to know which way the stock will break, most traders will wait for the breakout or breakdown before entering a trade.
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The Tale of the Tape: TWNK has formed a simple symmetrical triangle. A trader could enter a long position on a break above the down trending resistance (near $17) with a stop set under the entry level. However, if TWNK were to break below the trend line support (currently near $15.75), a short trade could be entered with a stop above the trend line.
Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.
No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!
Christian Tharp, CMT
Follow me on Twitter: @cmtstockcoach