DELAFIELD, Wis. (Stockpickr) -- Trading stocks that trigger major breakouts can lead to massive profits. Once a stock trends to a new high, or takes out a prior overhead resistance point, then it's free to find new buyers and momentum players that can ultimately push the stock significantly higher.
One example of a successful breakout trade I flagged recently was airline player Gol Linhas Aereas Inteligentes (GOL), which I featured in Aug. 30's "5 Stocks Ready to Break Out" at $3.77 a share. I mentioned in that piece that shares of GOL were uptrending strong for the last few months, with shares moving higher from $2.74 to $3.83 a share. Shares of GOL had recently formed a double bottom chart pattern right above its 50-day moving average at $3.57 to $3.55 a share. That move was quickly pushing shares of GOL within range of triggering a near-term breakout trade above some key overhead resistance levels at $3.83 to $4.14 a share.
Guess what happened? Shares of GOL didn't wait long to trigger that breakout since the stock cleared those overhead resistance levels the following week with strong upside volume. Shares of GOL have hit an intraday high today of $5 a share, which represents a gain of 30% from when I flagged this setup. I don't think this stock is done going higher since the current uptrend remains intact, and shares of GOL are starting to take out more resistance today at $4.93 a share. This stock could easily tag $5.50 to $6 in the coming weeks, if the uptrend continues.
Breakout candidates are something that I tweet about on a daily basis. I frequently tweet out high-probability setups, breakout plays and stocks that are acting technically bullish. These are the stocks that often go on to make monster moves to the upside. What's great about breakout trading is that you focus on trend, price and volume. You don't have to concern yourself with anything else. The charts do all the talking.
Trading breakouts is not a new game on Wall Street. This strategy has been mastered by legendary traders such as William O'Neal, Stan Weinstein and Nicolas Darvas. These pros know that once a stock starts to break out above past resistance levels, and hold above those breakout prices, then it can easily trend significantly higher.
With that in mind, here's a look at five stocks that are setting up to break out and trade higher from current levels.
Sarepta Therapeutics
One name that's starting to trend within range of triggering a big breakout trade is Sarepta Therapeutics (SRPT), which discovers and develops RNA-based therapeutics for the treatment of rare and infectious diseases. Its lead product candidate is eteplirsen. This stock has been uptrending strong so far in 2013, with shares up 45%.
If you take a look at the chart for Sarepta Therapeutics, you'll notice that this stock has been uptrending strong over the last month, with shares moving higher from its low of $29.71 to its intraday high of $38.16 a share. During that uptrend, shares of SRPT have been consistently making higher lows and higher highs, which is bullish technical price action. Shares of SRPT have now started to spike back above its 50-day moving average of $37.50, and that move is quickly pushing SRPT within range of triggering a big breakout trade.
Traders should now look for long-biased trades in SRPT if it manages to break out above its 50-day at $37.50 a share and then once it clears some key near-term overhead resistance at $39.12 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average volume of 1.65 million shares. If that breakout hits soon, then SRPT will set up to re-test or possibly take out its next major overhead resistance levels at $46 to $47 a share.
Traders can look to buy SRPT off any weakness to anticipate that breakout and simply use a stop that sits right below some key near-term support levels at $35.31 to $35 a share. One can also buy SRPT off strength once it takes out those breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.
Aeropostale
Another stock that looks poised to trigger a major breakout trade is Aeropostale (ARO), which operates as a mall-based retailer of casual apparel and accessories for young women and men in the U.S. This stock has been destroyed by the sellers so far in 2013, with shares off by 31%.
If you take a look at the chart for Aeropostale, you'll notice that this stock has been downtrending badly for the last month and change, with shares plunging from its high of $15.73 to its recent 52-week low of $7.78 a share. During that downtrend, shares of ARO have been consistently making lower highs and lower lows, which is bearish technical price action. That said, shares of ARO have now started to rebound sharply off that $7.78 low and are quickly moving within range of triggering a major breakout trade.
Traders should now look for long-biased trades in ARO if it manages to break out above its gap down day high of $9.55 a share with high volume. Look for a sustained move or close above that level with volume that hits near or above its three-month average action 3.12 million shares. If that breakout hits soon, then ARO will set up to re-fill some of its previous gap down zone from August that started near $11.50 a share. If that gap gets filled with volume, then ARO could even hit $12 to $13 a share.
Traders can look to buy ARO off any weakness to anticipate that breakout and simply use a stop that sits right below its 52-week low of $7.78 a share. One could also buy ARO off strength once it takes out $9.55 a share with volume and then simply use a stop that sits a comfortable percentage from your entry point.
GTx
One biopharmaceutical player that's rapidly moving within range of triggering a major breakout trade is GTx (GTXI), which is dedicated to the discovery, development and commercialization of small molecules that selectively target hormone pathways to treat cancer, osteoporosis and bone loss, muscle loss and other serious medical condition. This stock has been hammered by the bears so far in 2013, with shares off sharply by 53%.
If you look at the chart for GTx, you'll notice that this stock recently gapped down sharply from over $4 to below $1.50 a share with heavy downside volume. Following that gap down, shares of GTXI have rebounded sharply and started to uptrend, with the stock moving higher from its low of $1.31 to its recent high of $1.96 a share. During that move, shares of GTXI have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of GTXI within range of triggering a major breakout trade.
Traders should now look for long-biased trades in GTXI if it manages to break out above some near-term overhead resistance at $1.96 a share with high volume. Look for a sustained move or close above that level with volume that hits near or above its three-month average action of 1.35 million shares. If that breakout triggers soon, then GTXI will set up to re-fill some of its previous gap down zone from August that started just above $4 a share. Some possible upside targets if GTXI gets into that gap with volume are $2.50 to $3 a share, or possibly even $3.50 a share.
Traders can look to buy GTXI off any weakness to anticipate that breakout and simply use a stop that sits right below some key near-term support at $1.50 a share. One can also buy GTXI off strength once it takes out $1.96 a share with volume and then simply use a stop that sits a comfortable percentage from your entry point.
Nam Tai Electronics
Another stock that's starting to move within range of triggering a big breakout trade is Nam Tai Electronics (NTE), which is an electronics manufacturing and design services provider to a select group of the world's leading OEMs of telecommunications and consumer electronic products. This stock has been destroyed by the sellers so far in 2013, with shares off sharply by 41%.
If you look at the chart for Nam Tai Electronics, you'll notice that this stock has been uptrending for the last month and change, with shares moving higher from its low of $6.05 to its recent high of $8.38 a share. During that uptrend, shares of NTE have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of NTE within range of triggering a big breakout trade.
Traders should now look for long-biased trades in NTE if it manages to break out above some key near-term overhead resistance levels at $8.38 to $8.79 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 647,483 shares. If that breakout triggers soon, then NTE will set up to re-fill some of its previous gap down zone from April that started near $11.50 a share. If this stock gets into that gap with volume, then the upside is tremendous and we could easily see NTE hit $11 to $12 a share.
Traders can look to buy NTE off any weakness to anticipate that breakout and simply use a stop that sits right below its 50-day at $7.42 a share, or below more key support at $7.22 a share. One can also buy NTE off strength once it takes out that breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.
Potash
My final breakout trading prospect is Potash (POT), an integrated fertilizer and related industrial and feed products company that owns and operates five potash mines in Saskatchewan and one in New Brunswick. This stock has been hit hard by the bears so far in 2013, with shares off sharply by 19%.
If you look at the chart for Potash, you'll notice that this stock gapped down sharply back in July from $38 to $29 with heavy downside volume. Following that gap down, shares of POT have formed a bottoming chart pattern as the stock has started to uptrend, with shares moving higher from its low of $28.55 to its recent high of $33.38 a share. Shares of POT have been flirting with its 50-day moving average today at $33.11 a share, and it's quickly moving within range of triggering a near-term breakout trade.
Traders should now look for long-biased trades in POT if it manages to break out above some near-term overhead resistance levels at Friday's high of $33.30 to some key overhead resistance at $33.38 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 12.87 million shares. If that breakout triggers soon, then POT will set up to re-fill some of its previous gap down zone from July that started near $38 a share.
Traders can look to buy POT off any weakness to anticipate that breakout and simply use a stop that sits right below some key near-term support levels at $31.39 a share to $30 a share. One could also buy POT off strength once it clears those breakout levels with volume and then simply use a stop that sits a conformable percentage from your entry point.
To see more breakout candidates, check out the Breakout Stocks of the Week portfolio on Stockpickr.
-- Written by Roberto Pedone in Delafield, Wis.
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