Stock Quotes in this Article: CERS, NVAX, SCMP, SGYP, STEM

 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.

One recent example of a successful breakout trade that I highlighted was biotechnology and drugs player Nektar Therapeutics (NKTR). In Aug. 31's “5 Stocks Poised for Big Breakouts,” I highlighted how NKTR had entered a sideways trading pattern between $7.86 and $8.73 a share. I advised traders to look for long-biased trades in NKTR once it broke out of that sideways trading pattern with strong upside volume.

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Guess what happened? Shares of NKTR went on to trigger that breakout with monster upside volume. The stock then ripped above some more overhead resistance at $9.94 a share with heavy upside volume. That breakout has now taken NKTR to its recent high of $10.90 a share. When I wrote the article, NKTR was trading at around $8.50 a share, so that’s a solid gain of close to 30% in a very short timeframe if you had traded that breakout.

Shares of NKTR are now getting a bit overbought with its current relative strength index (RSI) reading at over 80. This is a good area to lock in some profits if you caught that monster move over the past month.

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.

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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.

 

 

Novavax

One stock in the biotechnology and drugs complex that’s trending within range of triggering a major breakout trade is Novavax (NVAX), whose product pipeline focuses on a variety of infectious diseases and whose vaccine candidates have completed clinical trials that target pandemic influenza, seasonal influenza and respiratory syncytial virus. This stock is off to a hot start in 2012, with shares up over 60% so far.

If you take a look at the chart for Novavax, you’ll notice that this stock has been trading inside of a large range for the past two months, with shares bouncing between $1.80 on the downside and $2.24 on the upside. A high-volume move outside of the upper-end of that range will trigger a major breakout trade for shares of Novavax.

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Traders should now look for long-biased trades in NVAX once it manages to break out above some near-term overhead resistance levels at $2.15 to $2.24 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 1 million shares. If that breakout triggers soon, then NVAX will have a great chance of re-testing or possibly taking out its next major overhead resistance levels at $2.70 to $3 a share. Any high-volume move above $3 could put NVAX’s 2011 high into play at $3.50.

One could look to buy NVAX off any weakness to anticipate that breakout, and simply use a stop that sits near $1.85 to $1.80 a share. Or a better strategy might be to buy off strength once it starts to clear $2.15 to $2.24 with volume, and then simply use a stop that sits just under its 50-day moving average of $2.01 a share.

Synergy Pharmaceuticals

Another stock in the biotechnology and drugs complex that’s setting up for a major breakout trade is Synergy Pharmaceuticals (SGYP), which focuses primarily on the development of drugs to treat gastrointestinal disorders and diseases in the U.S. This stock is off to a decent start in 2012, with shares up over 30% so far.

If you take a look at the chart for Synergy Pharmaceuticals, you’ll notice that this stock has been trending sideways for the last month and change, with shares moving between $4.30 on the downside and $5.24 on the upside. This sideways trend has been keeping SGYP above both its 50-day and 200-day moving averages, which is technically bullish price action. This trend has also started to coil up SGYP into a tight range, which is often what we see before a stock makes a powerful breakout.

Market players should now look for long-biased trades in SGYP once it manages to take out some near-term overhead resistance levels at $5 to $5.24 a share with high volume. Look for a sustained move or close above those levels with volume that tracks in close to or above its three-month average action of 229,859 shares. If that breakout triggers soon, SGYP could make a powerful move and possibly re-test its May high of $7.08 a share.

One can look to buy SGYP off any weakness and anticipate that breakout, and simply use a stop that sits right below some near-term support at $4.30 a share. One could also buy off strength once SGYP takes out $5 to $5.24 a share with high volume, and then simply use a stop at around $4.70 a share.

Sucampo Pharmaceuticals

Another biotech stock that’s trading within range of triggering a near-term breakout trade is Sucampo Pharmaceuticals (SCMP), which is focused on the discovery, development and commercialization of drugs based on prostones, to treat gastrointestinal, ophthalmologic, CNS, vascular and respiratory diseases as well as other potential therapeutic applications. This stock has been hit hard by the sellers during the last six months, with shares down by around 30%.

If you look at the chart for Sucampo Pharmaceuticals, you’ll notice that this stock has been uptrending strong for the last two months, with shares soaring from a low of $3.78 to its recent high of $5.45 a share. During that uptrend, shares of SCMP have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed SCMP within range of triggering a near-term breakout trade.

Market players should now look for long-biased trades in SCMP if it can manage to break out above some near-term overhead resistance levels at $5.45 to $6.03 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 76,125 shares. If that breakout triggers soon, then SCMP will have a great chance to re-fill a previous gap and trend up towards $7 a share. This stock could even hit $8 if it were to clear some more overhead resistance at $7.25 a share with high volume.

One could look to buy SCMP off any weakness to anticipate that breakout, and simply use a stop somewhere near $4.70 a share. A better play might be to just buy SCMP off strength once it clears $5.45 and then clears its 200-day moving average at $6.03 a share with heavy volume. If you buy off strength, then I would use a stop at around $5.20 a share.

Cerus

Another stock trading within range of a near-term breakout trade is Cerus (CERS), a biomedical products company focused on commercializing the Intercept Blood System to enhance blood safety. This stock is off to a decent start in 2012, with shares up over 20%.

If you look at the chart for Cerus, you’ll see that this stock has been uptrending strong since the start of August, with shares trending higher from a low of $3 to its recent high of $3.61 a share. During that uptrend, shares of CERS have been consistently making higher lows and higher highs, which is bullish technical price action. That move has also pushed CERS within range of triggering a near-term breakout trade.

Traders should now look for long-biased trades in CERS if it can manage to break out above some near-term overhead resistance levels at $3.54 to $3.60, and then $3.78 to $3.82 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 286,831 shares. If that breakout triggers soon, then CERS will have a great chance to re-test or possibly take out its next major overhead resistance levels at $4.06 to $4.53 a share.

You could look to buy CERS off weakness and simply use a stop that sits just below its 50-day moving average of $3.26 a share. Or one could buy off strength once CERS starts to take $3.54 to $3.82 with volume, and simply use a stop just below its 200-day moving average of $3.39 a share.

StemCells

One more stock that’s nearing a major breakout trade is StemCells (STEM). This company is focused on cellular medicine, or the use of stem and progenitor cells as the basis for therapeutics and therapies, and enabling technologies for stem cell research, or the use of cells and related technologies to enable stem cell-based research and drug discovery and development. This stock is off to a monster start in 2012, with shares up a whopping 150% so far.

If you look at the chart for StemCells, you’ll notice that this stock has uptrending ridiculously strong for the past four months, with shares soaring from a low of 60 cents to its recent high of $2.67 a share. During that uptrend, shares of STEM have been consistently making higher lows and higher highs, which is bullish technical price action. Shares of STEM have now started to trend sideways during the last month, with shares moving between $1.80 and $2.28 a share. A high-volume above the upper-end of that sideways trading pattern will now trigger a major breakout trade for STEM.

Traders should now look for long-biased trades in STEM once it manages to clear some near-term overhead resistance levels at $2.27 to $2.28 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 2.8 million shares. If that breakout triggers soon, then STEM will setup to re-test and possibly take out its next major overhead resistance level at $2.67 a share. If $2.67 was to get taken out with volume, then STEM will have an excellent chance of tagging $4 a share very soon.

One could look to buy STEM off any weakness, and simply use a stop that sits right around its 50-day moving average of $1.85 a share. You could also just buy off strength once STEM clears $2.27 to $2.28 a share with high volume, and then simply use a stop at around $2 a share.

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.