Five Stocks Poised for Breakouts
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.
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.
Velti
One stock that's trending very close to triggering a near-term breakout trade is Velti, which is a global provider of mobile marketing and advertising technology and solutions. This stock has been destroyed by the bears during the last six months, with shares off by 74 percent.
If you take a look at the chart for Velti, you'll notice that this stock has been trending sideways in a consolidation pattern for the last month, with shares moving between $1.80 on the downside and $2.10 on the upside. This consolidation pattern is occurring after shares of Velti gapped down in mid-March from over $3 to around $2 a share. Shares of Velti are now starting to move within range of triggering a near-term breakout trade above the upper-end of its recent sideways chart pattern.
Traders should now look for long-biased trades in Velti if it manages to break out above some near-term overhead resistance levels at $2.08 to $2.10 a share and then above more resistance at $2.13 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 2.35 million shares. If that breakout triggers soon, then the stock will set up to re-test or possibly take out its gap down day high that sits right around $2.50 a share.
Traders can look to buy Velti off any weakness to anticipate that breakout and simply use a stop that sits just below some key near-term support levels at $1.86 to $1.80 a share. One could also buy the stock off strength once it takes out those breakout levels with volume and then simply use a stop right at around $2 to $1.86 a share. I would add to either position once Velti clears its gap down day high at $2.50 with strong volume.
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This stock is a favorite target of the short-sellers, since its current short interest as a percentage of the float is extremely high at 27.9 percent. If that breakout triggers soon, then I expect to see a monster move higher for Velti as the shorts rush to cover some of those bearish bets.
Rigel Pharmaceuticals
Another stock that's trending very close to triggering a major breakout trade is Rigel Pharmaceuticals, a clinical-stage drug development company that discovers and develops novel, small-molecule drugs for the treatment of inflammatory/autoimmune diseases, as well as for certain cancers and metabolic diseases. This stock has been hammered by the bears so far in 2013, with shares off by a 28 percent.
If you look at the chart for Rigel Pharmaceuticals, you'll notice that this stock recently gapped down huge from over $7.50 a share to its 52-week low of $4.41 a share with heavy downside volume. That move has pushed shares into oversold territory, since its current relative strength index reading is 30. Oversold can always get more oversold, but it's also an area where a stock can experience a powerful bounce higher from if buyers step in. Shares of Rigel Pharmaceuticals have started to trend up off that $4.41 low and it's now quickly moving within range of triggering a major breakout trade.
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Traders should now look for long-biased trades in Rigel Pharmaceuticals if it manages to break out above some near-term overhead resistance at $4.81 a share and then once it takes out its gap down day high of $5.14 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 729,058 shares. If that breakout triggers soon, then the stock will set up to re-fill some of its previous gap down zone from earlier this month that started above $7.50 a share.
Traders can look to buy Rigel Pharmaceuticals off any weakness to anticipate that breakout and simply use a stop that sits right below its 52-week low of $4.41 a share. One can also buy Rigel Pharmaceuticals off strength once it takes out those breakout levels with volume and then simply use a stop just below at around $4.70 to $4.50 a share.
3D Systems
Another stock that's quickly moving within range of triggering a near-term breakout trade is 3D Systems, which manufactures and sells 3D content-to-print solutions and 3D printing systems. This stock has been on fire during the last six months, with shares up sharply by 44 percent.
If you take a look at the chart for 3D Systems, you'll notice that this stock recently pulled back to its 200-day moving average at $30.34 a share and the stock stopped its slide and found buying interest. Since tagging its 200-day, shares of 3D Systems have started to bounce higher to its current price around $35 a share. That bounce is quickly pushing shares within range of triggering a near-term breakout trade.
Market players should now look for long-biased trades in 3D Systems if it manages to break out above its 50-day moving average at $35.36 a share and then once it clears more near-term overhead resistance levels at $36.54 to $37.85 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 action of 5.11 million shares. If that breakout triggers soon, then DDD will set up to re-test or possibly take out its next major overhead resistance levels at $42 to $44 a share. Any high-volume move above $44 will then put $45.63 to $47.99 into range for shares of 3D Systems.
Traders can look to buy 3D Systems off any weakness to anticipate that breakout and simply use a stop that sits right around some near-term support levels at $34 to $33.50 a share. One could also buy 3D Systems off strength once it clears those breakout levels with volume and then simply use a stop that sits right below its 50-day at $35.36 a share.
This stock is hated on Wall Street, since the current short interest as a percentage of the float for 3D Systems is very high at 31.3 percent. If that breakout triggers soon, then shares of 3D Systems could easily rip significantly higher due to its high short interest.
Baidu.com
One stock that's starting to trend within range of triggering a near-term breakout trade is Baidu.com, a Chinese-language Internet search provider. This stock has been moving lower so far in 2013, with shares off by 9.5 percent.
If you look at the chart for Baidu.com, you'll notice that this stock recently gapped higher from below $85 to above $90 a share with heavy upside volume. That move took shares of Baidu back above some near-term overhead resistance at $89 a share. This stock is now starting to flirt with its 50-day moving average of $90.59 a share and it's quickly moving within range of triggering a near-term breakout trade.
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Market players should now look for long-biased trades in Baidu if it manages to break out above its 50-day at $90.59 a share and then once it takes out more overhead resistance levels at $92.09 to $93.21 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 action of 4.15 million shares. If that breakout hits soon, then Baidu will set up to re-test or possibly take its next major overhead resistance levels at $97.50 to its gap down day high from early February at around $100 a share.
Any high-volume move above $100 would then give Baidu a chance to re-fill some of its previous gap down zone that started near $110 a share.
Traders can look to buy Baidu off any weakness to anticipate that breakout and simply use a stop that sits right below some key near-term support at around $87.50 a share. One can also buy the stock off strength once it clears those breakout levels with volume and then simply use a stop that sits right below its 50-day at $90.58 a share.
Spirit Airlines
My final idea today for a breakout trade is Spirit Airlines, which provides passenger airline service principally to and from south Florida, the Caribbean and Latin America. This stock has been red hot so far in 2013, with shares up 46 percent.
If you look at the chart for Spirit Airlines, you'll notice that this stock has been uptrending strong for the last two months and change, with shares soaring higher from its low of $18.51 to its recent high of $26.87 a share. This stock briefly pulled back off that $26.87 high to $24.30 a share, but it has now started to uptrend again and move within range of triggering a near-term breakout trade.
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Traders should now look for long-biased trades in Spirit Airlines if it manages to break out above some near-term overhead resistance at its 52-week high of $26.87 a share with high volume. Look for a sustained move or close above that level with volume that registers near or above its three-month average action of 577,433 shares. If that breakout triggers soon, then the stock will set up to enter new 52-week-high and all-time-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $30 to $35 a share or possibly even $40 a share.
Traders can look to buy Spirit Airlines off any weakness to anticipate that breakout and simply use a stop that sits right below some key near-term support at $24.30 a share. One could also buy Spirit Airlines off strength once it takes out that $26.87 a share with volume and then simply use a stop that's a few percentage points below your entry point.
—By TheStreet.com Contributor Roberto Pedone
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