Stock Quotes in this Article: DYAX, GERN, SGMO, TSPT, VPHM

WINDERMERE, Fla. (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.

A great example of a successful breakout trade that I highlighted recently was AuthenTec (AUTH). On Tuesday, I highlighted shares of AUTH in "4 Stocks Under $10 Making Big Moves," because the stock was moving notably higher with above average volume. Shares of AUTH were also starting to take out some previous overhead resistance levels at $5.19 a share.

Guess what happened? Just this morning, news has hit the wires that Apple (AAPL) has purchased AuthenTec for $350 million, or $8 a share in cash, which represents a 58% premium over Thursday’s closing price. Traders didn’t even have to wait long to get paid in spades off the breakout action in AUTH.

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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.

Viropharma

One biotechnology and drugs player that’s trading within range of triggering a near-term breakout trade is Viropharma (VPHM), which is engaged in the development and commercialization of products that address diseases, with a focus on products used by physician specialists or in hospital settings. This stock is off to a slow start so far in 2012, with shares down by over 14%.

If you take a look at the chart for Viropharma, you’ll notice that this stock gapped down huge back in April from $31 to $20 a share on monster volume. Follow that sharp move lower, shares of VPHM formed a double-bottom chart pattern at around $19.12 to $19.02 a share, and then went on to spike higher toward its current price of $23.30 a share. That spike has now pushed VPHM within range of triggering a near-term breakout trade.

Traders should now look for long-biased traders in VPHM once it manages to trigger a breakout trade above some near-term overhead resistance at $23.43 to $23.89 a share, and then above its 200-day moving average of $24.76 a share with high volume. Look for a sustained move or close above those levels with volume that’s near or above its three-month average action of 1.1 million shares.

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If we get that action soon, then VPHM will have a great chance to re-fill some of that gap from back in April. We could easily see VPHM spike toward $27 to $28 a share in the near future.

One could look to buy VPHM off any weakness to anticipate the breakout and simply use a stop near its 50-day moving average of $21.76 a share. I would rather buy this off strength though and get long once it clears those breakout levels with high volume. Use a stop just below $23.43 if you get long off strength.

Sangamo Biosciences

Another stock in the biotechnology and drugs complex that’s trading within range of a major breakout trade is Sangamo Biosciences (SGMO), which is engaged in the research, development and commercialization of zinc finger DNA-binding proteins, a naturally occurring class of proteins. This stock is off to an extremely bullish start to 2012, with shares up around 95% so far on the year.

If you take a look at the chart for Sangamo Biosciences, you’ll notice that this stock has just started to bounce right off its 50-day moving average of $4.95 a share, after it had pulled back from around $5.88 a share. This bounce is now gearing SGMO up to re-test those recent highs and possible trigger a major breakout trade.

Market players should now look for long-biased traders in SGMO if this stock can manage to trigger a breakout trade above some overhead resistance levels at $5.88 to $5.89 a share, and then above $6.16 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 246,756 shares. If we get that move soon, then SGMO has a strong chance to spike towards $7 to $8 a share.

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One can look to buy SGMO off any weakness to anticipate that breakout and simply use a stop somewhere around its 50-day moving average of $4.95. I would rather buy off strength once SGMO clears $5.88 to $5.89 with volume and then add more above $6.16 a share. If you buy offs strength, then use a stop around $5.30 a share.

Transcept Pharmaceuticals

Another biotech stock that’s approaching a near-term breakout trade is Transcept Pharmaceuticals (TSPT), a specialty pharmaceutical company focused on the development and commercialization of products that address therapeutic needs in the field of neuroscience. This stock is off to a slow start in 2012, with shares off by around 16% so far.

If you look at the chart for Transcept Pharmaceuticals, you’ll notice that this stock has been hammered during the last four months, with shares plunging from a high of $12.99 to a recent low of $5.81 a share. During that plunge, shares of TSPT had been consistently making lower highs and lower lows, which is bearish technical price action.

That said, shares of TSPT now look to have bottomed since the stock has found buying interest at around $5.81 to $5.95 during the last two months. That possible bottom has now put a major breakout into focus if TSPT can manage to clear some near-term overhead resistance levels.

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Market players should now look for long-biased trades in TSPT if it can manage to trigger a near-term breakout trade above some overhead resistance levels at $6.70 to $6.73 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 245,600 shares. If we get that action soon, then TSPT could easily re-test and possibly take out some more resistance levels at $7.45 and its 200-day moving average of $7.97 a share.

One could buy TSPT off any weakness and simply use a stop close to some near-term support at $6.16 a share. You could also just get long off strength once TSPT clears $6.70 to $6.73 with heavy volume. If you buy off strength, then I would use a stop near its 50-day moving average of $6.51, or even down towards $6.16 if you want to give it more room.

Geron

Another stock that’s setting up to trigger a near-term breakout trade is Geron (GERN), a biopharmaceutical company developing therapies for cancer. This stock is off to a decent start so far in 2012, with shares up over 17%.

If you look at the chart for GERN, you’ll see that this stock has been trading within range for the past month, with shares moving between $1.50 and $1.79 a share. That move has also started to coil up the stock between its 50-day moving average at $1.52 and its 200-day moving average of $1.73 a share. Traders should now look to play a move in GERN above its 200-day at $1.73 and above the upper end of that range. A high-volume move above those levels could spark a huge move higher in this stock.

Traders should now look for long-biased traders in GERN if this stock can manage to clear its 200-day at $1.73 a share, and then take out some more overhead resistance at $1.79 to $1.89 a share with high volume. Look for a sustained move or close above those levels with volume that’s near or above 688,470 shares. If we get that action soon, then GERN could easily re-test and possibly take out its next major overhead resistance levels at $2.22 to $2.60 a share.

One could be a buyer of GERN off any weakness, and simply use a stop around $1.60 or even just below $1.50 a share. You could also just buy off strength once GERN once GERN starts to challenge those breakout levels, and then simply use a stop that sits a few percentage points below its 200-day moving average.

Dyax

One more stock that’s setting up to trigger a major breakout trade is biotechnology and drugs player Dyax (DYAX), which focuses on identifying, developing and commercializing treatments for conditions identified as plasma kallikrein (bradykinin) mediated angioedema, including hereditary angioedema, ACE inhibitor-induced angioedema and angioedema. This stock is off to a blazing hot start in 2012, with shares up a whopping 100%.

If you look at the chart for DYAX, you’ll see that this stock has been uptrending strong for the past six months, with shares soaring from a low of $1.33 to a recent high of $2.88 a share. During that monster uptrend, shares of DYAX have been consistently making higher lows and higher highs, which is bullish technical price action. That move is now quickly pushing DYAX within range of triggering a major breakout trade.

Market players should now look for long-biased traders in DYAX if it can manage to clear some key breakout levels of $2.88 to $2.90 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 535,998 shares. If we get that move soon, then DYAX could trend higher towards its next significant overhead resistance levels at $3.50 $4.14 a share.

One could look to buy DYAX off weakness and simply use a stop below some key near-term support at $2.50 a share. I would rather buy off strength once DYAX takes out $2.88 to $2.90 a share with heavy volume. If you buy off strength, you can actually use that same stop just below $2.50 a share.

Keep in mind that DYAX has a major catalyst on the horizon, since the company will meet with the FDA on September 5 for interim Phase II data on its drug Ecallantide, which is used for the treatment of ACE-induced angioedema, a life threatening inflammatory response brought on by adverse reaction to angiotensin-converting enzyme inhibitors. If this stock triggers that breakout soon, then it will likely spike higher right into that event.

To see more breakout candidates, check out the Breakout Stocks of the Week portfolio on Stockpickr.

-- Written by Roberto Pedone in Winderemere, Fla.

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At the time of publication, author had no positions in stocks mentioned.

Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.