Ascending Triangle Breakout Alert – Ctrip.com International (NSDQ: CTRP)

The rally today on Wall Street propelled Ctrip.com (NSDQ: CTRP) to an all time high.  For the last 2 ½ months the stock has topped out at the $40.40 level.  The pullbacks from this level have been at higher levels forming an ascending triangle (see Stock Trading Cards T15 and T16).  An ascending triangle is a ‘measuring pattern,’ which means it can tell us how far today’s breakout can run to.

Using the October 30, 2009 low at $26.77 as the entry into this pattern, the $40.40 breakout signals a run to $54.03.  Using the February 4, 2010 as the low that entered into this pattern at $30.16 the target price is $50.64.  Today’s closing price for CTRP was $42.40 leaving us with potential profits of between $8.24 (19.4%) and $11.63 (27.5%).

Looking at the risk side, the breakout of a level that has had multiple previous tops gives the stock support at $40.40.  This is one of the best things about an ascending triangle as the top ‘edge’ of the pattern is support.  The 50 day exponential moving average is currently at $37.81.  Ascending triangles do have a tendency to pull back to their breakout level ($40.40), so waiting for the stock to come back in may give you a better entry point BUT sometimes there is no pull back at all.  These tops at $40.40 offer a place to set your protective sell stops just 2 points below today’s close.  I would use $39.94 to place a sell stop as this gives you a little more flexibility to account for market gyrations.

At $39.94 you are looking at $2.46 of loss compared to potential gain of $8.24.  This is a 3.34 to 1 ratio, which I like, with the higher price target making this ratio even larger. If you want a stop set with a higher tolerance, I would use the 50 EMA at $37.81 but this gives you more risk.

More about CTRP – The company provides travel related services to the Republic of China and has a P/E of 57.14 (trailing 12 months) with a forward P/E of 34.75.  This number does not compare well with the trailing 12 P/E of Priceline.com at 18 (NSDQ: PCLN).  Regardless, this is a solid pattern as far as reliability goes.

Tuesday June 15, 2010