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 who can ultimately push the stock significantly higher.
One example of a successful breakout trade I flagged recently was gaming-related enterprise player Full House Resorts (FLL), which I featured in Sep. 22's "5 Stocks to Trade for Big Breakout Gains" at around $1.05 per share. I mentioned in that piece that shares of Full House Resorts had recently formed a double bottom chart pattern at 95 cents per share. Following that bottom, shares of FLL were starting to spike higher and it was quickly moving within range of triggering a big breakout trade above some key near-term overhead resistance levels at $1.13 to $1.15 a share and then $1.20 a share.
Must Read: 5 Breakout Stocks Under $10 Set to Soar
Guess what happened? Shares of Full House Resorts triggered that breakout a few trading sessions later with strong upside volume flows. Shares of FLL tagged a recent intraday high of $1.35 a share, which represents a large gain of around 30% from the time I flagged this setup in my original article. As you can see, trading stocks that trigger breakouts above key overhead resistance levels with volume can produce large profits in very short time frames.
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.
Must Read: Must-See Charts: 5 Big Stocks to Trade for Big Gains
Conatus Pharmaceuticals
One biotechnology stock that's starting to trend within range of triggering a near-term breakout trade is Conatus Pharmaceuticals (CNAT), which focuses on the development and commercialization of novel medicines to treat liver diseases in the U.S. This stock has been hit hard by the sellers over the last three months, with shares down by 24%.
If you take a look at the chart for Conatus Pharmaceuticals, you'll notice that this stock has been downtrending pretty bad over the last four months, with shares moving lower from its of $9.90 to its recent low of $5.76 a share. During that downtrend, shares of CNAT have been making mostly lower highs and lower lows, which is bearish technical price action. That said, shares of CNAT have now started to rebound off that $5.76 low and it's quickly moving within range of triggering a near-term breakout trade.
Traders should now look for long-biased trades in CNAT if it manages to break out above its 50-day moving average of $6.86 a share and then once it clears some key near-term overhead resistance at $7.37 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 350,433 shares. If that breakout gets underway soon, then CNAT will set up to re-test or possibly take out its 200-day moving average of $7.99 to some more key overhead resistance levels at $8.25 to $8.44 a share.
Traders can look to buy CNAT off weakness to anticipate that breakout and simply use a stop that sits right below some key near-term support levels at $6 or at $5.76 a share. One can also buy CNAT off strength once it starts to clear those breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.
Must Read: 5 Stocks Under $10 Making Big Moves Higher
Zulily
An e-commerce stock that's starting to move within range of triggering a big breakout trade is Zulily (ZU), which through its desktop and mobile Web sites and mobile applications, helps its customers discover new and unique products. This stock has been hit hard over the last six months, with shares down sharply by 26%.
If you take a glance at the chart for Zulily, you'll see that this stock has been trending sideways and consolidating for over the last four months, with shares moving between $31.81 on the downside and $42.56 on the upside. Shares of ZU are now starting to bounce higher off its 50-day moving average of $36.09 a share and it's starting to trend within range of triggering a breakout trade above the upper-end of its recent sideways trading chart pattern.
Traders should now look for long-biased trades in ZU if it manages to break out above some key overhead resistance levels at $40 to its 200-day at $41.44 a share and then above more resistance at $41.75 to $42.56 a share with high volume. Look for a sustained move or close above those levels with volume that registers near or above its three-month average volume of 1.15 million shares. If that breakout triggers soon, then ZU will set up to re-fill some of its previous gap-down-day zone from May that started at $50.38 a share.
Traders can look to buy ZU off weakness to anticipate that breakout and simply use a stop that sits right below some key near-term support at $35.71 a share. One could also buy ZU off strength once it starts to clear those breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.
Must Read: 5 Stocks With Big Insider Buying
Whole Foods Market
Another grocery store player that's starting to trend within range of triggering a big breakout trade is Whole Foods Market (WFM), which operates as a retailer of natural and organic foods. This stock has been slammed hard by the sellers so far in 2014, with shares down sharply by 33%.
If you take a glance at the chart for Whole Foods Market, you'll notice that this stock has formed a major bottoming chart pattern over the last two months, with shares finding buying interest at $37.08, $37.28 and $37.30 a share. Shares of WFM are now starting to spike modestly higher right above those support levels and it's starting to flirt with its 50-day moving average of $38.27 a share. This move is starting to push shares of WFM within range of triggering a near-term breakout trade above some key overhead resistance levels.
Traders should now look for long-biased trades in WFM if it manages to break out its 50-day moving average of $38.27 a share and then above some key near-term overhead resistance levels at $39.50 to $40.08 and $40.32 a share with high volume. Watch for a sustained move or close above those levels with volume that registers near or above its three-month average action 6.24 million shares. If that breakout develops soon, then WFM will set up to re-test or possibly take out its next major overhead resistance level at $42.63 a share. Any high-volume move above $42.63 will then give WFM a chance to re-fill some of its previous gap-down-day zone from May that started just above $48 a share.
Traders can look to buy WFM off weakness to anticipate that breakout and simply use a stop that sits right below those key support levels around $37 a share or near more major support at $36 a share. One can also buy WFM off strength once it starts to move above those breakout levels share with volume and then simply use a stop that sits a comfortable percentage from your entry point.
Must Read: Buy These 5 Momentum Movers to Stomp the S&P
iKang Healthcare Group
Another stock that's starting to trend within range of triggering a major breakout trade is iKang Healthcare Group (KANG), which together with its subsidiaries, provides preventive health care solutions in the People's Republic of China. This stock is off to a very hot start in 2014, with shares up sharply by 30%.
If you take a glance at the chart for iKang Healthcare Group, you'll notice that this stock has been uptrending for the last month, with shares moving higher from its low of $17.75 to its recent high of $21.09 a share. During that uptrend, shares of KANG have been making mostly higher lows and higher highs, which is bullish technical price action. Shares of KANG have now started to flirt with its 50-day moving average of $19.71 a share. That move is quickly pushing shares of KANG within range of triggering a major breakout trade above some key near-term overhead resistance levels.
Traders should now look for long-biased trades in KANG if it manages to break out above some key near-term overhead resistance levels at $20.33 to $21.09 a share and then above $22.01 to its all-time high of $22.86 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 260,036 shares. If that breakout begins soon, then KANG will set up to enter new all-time-high territory above $22.86, which is bullish technical price action. Some possible upside targets off that breakout are $30 to $35 a share.
Traders can look to buy KANG off weakness to anticipate that breakout and simply use a stop that sits right below some key near-term support levels at $19 to $18.47 a share. One can also buy KANG off strength once it starts to trend above those breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.
Must Read: How to Trade the Market's Most-Active Stocks
Rocket Fuel
My final breakout trading prospect is technology player Rocket Fuel (FUEL), which provides artificial-intelligence digital advertising solutions. This stock has been destroyed by the bears so far in 2014, with shares down huge by 72%.
If you look at the chart for Rocket Fuel, you'll notice that this stock gapped down sharply in August from around $27.50 to under $17.50 a share with heavy downside volume. Following that move, shares of FUEL went on to make a new low at $14.29 a share. Shares of FUEL have now started to trend sideways and consolidate since that large gap lower, with the stock trending between $14.29 on the downside and around $19 on the upside. Shares of FUEL have now started to spike higher off the lower-end of its recent range and it's quickly approaching a big breakout trade above the upper-end of its recent sideways trading chart pattern.
Traders should now look for long-biased trades in FUEL if it manages to break out above its 50-day moving average of $17.26 a share and then above its gap-down-day high of $19.24 a share high volume. Look for a sustained move or close above those levels with volume that registers near or above its three-month average action of 850,005 shares. If that breakout kicks off soon, then FUEL will set up to re-fill some of its previous gap-down-day zone from August that started at $27.50 a share.
Traders can look to buy FUEL off weakness to anticipate that breakout and simply use a stop that sits right below some major support levels at $14.64 to its 52-week low of $14.29 a share. One can also buy FUEL off strength once it starts to clear those breakout levels with volume and then simply use a stop that sits a conformable percentage from your entry point.
-- Written by Roberto Pedone in Delafield, Wis.
RELATED LINKS:
>>5 Dividend Stocks Ready to Hike Payments to Shareholders
>>3 Big Stocks on Traders' Radars
>>4 Stocks Under $10 Triggering Breakout Trades
Follow Stockpickr on Twitter and become a fan on Facebook.
At the time of publication, author had no positions in stocks mentioned.
Roberto Pedone, based out of Delafield, Wis., is an independent trader who focuses on technical analysis for small- and large-cap stocks, options, futures, commodities and currencies. Roberto studied international business at the Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany. His work has appeared on financial outlets including
CNBC.com and Forbes.com. You can follow Pedone on Twitter at www.twitter.com/zerosum24 or @zerosum24.
No comments:
Post a Comment