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4 Stocks Looking to Break Out - views
MILWAUKEE (Stockpickr) -- When trading, it is important to look for favorable risk/reward setups. In doing so, traders can plan their trades and manage capital more efficiently.
One favorable setup I like to look for when trading is breakouts. This setup is a favorite of mine because the amount of capital being risked is little compared with the possible reward on a strong breakout.
A breakout occurs when a stock takes out an area of resistance where sellers previous held the stock from moving higher. By breaking out of resistance, a stock can gather momentum as a new round of buyers and traders push the stock higher. After a strong breakout, the broken resistance level then becomes a support level where new buyers come in, holding the stock up.
With this in mind, here are a few stocks near breakout levels.
As you can tell from the chart, SodaStream International (SODA) has big break potential from a technical perspective. With a short interest of 7.2 million of 41.66% of the float, a break could have shorts covering.
SODA broke through $54 in early April and hit a high of $55.62 before coming back down. Since then, the stock broke the $54 area on Thursday and Friday, but both days failed to close above that level. When looking for an entry, I would look to start an initial position at the $54 level and add on the way up. A comfortable close above $54 and I would likely hold over night and possibly add more. A strong breakout should see volume above the 50-day moving average at 850,000.
I think we can see a quick move up to $57 on a good break and potentially higher if you are willing to hold.
My second breakout candidate to watch is Assured Guaranty (AGO). This stock broke above $21 twice in late March, hitting a high of $21.30. Although it broke $21, which was a resistance area, it failed to close above that level both times. I like an initial entry in this at $21 and adding some at $21.30. Ideally, a strong breakout will have volume over 3 million, as happened earlier this year when AGO had a nice run from $14 up to $20.
My third breakout candidate to watch is Gastar Exploration (GST). As you can see from the chart, this stock has been quite active in April on heavy volume. The stock hit a high of $2.88 earlier in the month and $2.86 last Thursday. A potential entry in this is the $2.88 area as the stock will look to break that and continue its strong uptrend. As noted, volume has been declining lately. A good breakout in GST should have strong volume around or over 1.5 million shares as we saw earlier in the month when the stock had a nice run.
My fourth and final breakout candidate is 3D Systems (DDD). With a short interest of 27.3 million shares or 32% of the float, a breakout in DDD could squeeze some shorts into covering.
From a trading perspective, an initial entry can be done in the lower $35s. However, I don’t think things will get heated up though until $36, another adding point. I think a break above $36 should have it test $36.54 the high set in the month of April and a third possible adding point at or above this level.
Given the short interest in the stock, a monster short squeeze could occur on a strong breakout over $36. If this occurs, $40 or higher is certainly a possibility.
-- Written by Andrew Anger in Milwaukee.
Andrew Anger, based out of Milwaukee, is a proprietary trader, focused on technical analysis in small- to large-cap stocks. He graduated in 2012 from Saint Mary's University of Minnesota with degrees in marketing and entrepreneurship. You can follow him on twitter @angertrader.