Stock Quotes in this Article: AFFY, ODP, SIMO, STEC, TSLA

MADISON, 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 that can ultimately push the stock significantly higher.

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One example of a successful breakout trade I flagged recently was electric car maker Tesla Motors (TSLA), which I featured in last week's "5 Stocks Poised for Breakouts" at around $95 a share. I mentioned in that piece that shares of TSLA had recently pulled back from its high of $97.12 a share to just under $85 a share with lighter volume. The stock was quickly rebounding off that $85 low and it was starting to break out above some near-term overhead resistance at $95 a share. That move was quickly pushing shares of TSLA within range of triggering a near-term breakout trade above some key resistance levels at $96 to its all-time high at $97.12 a share.

Guess what happened? Shares of TSLA flirted with that breakout the same day my article posted, when the stock hit an intraday high of $97.95 and closed at $97.08 a share. Then on Tuesday, shares of TSLA exploded higher and entered new all-time high territory, with the stock hitting an intraday high of $110.75 a share. This stock continued to trend higher on Wednesday, hitting a new all-time high of $114.90 a share. That represents a gain of 20% in just a few days for anyone who played the breakout. Shares of TSLA will now need to take out $114.90 a share with volume to have a chance at trending north of $120 a share. The key support level to focus on now is $100 a share.

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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.

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Stec


One stock that's trading within range of triggering a near-term breakout trade is Stec (STEC), which provides enterprise-class Flash solid-state drives that are designed to increase the performance of enterprise-storage systems and servers that companies use to retain and access their critical data. This stock has been hit ha rd by the sellers so far in 2013, with shares off by 25%.

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If you take a look at the chart for Stec, you'll notice that this stock dropped sharply from its March high of $5.61 a share to its recent low of $3.32 a share. During that plunge, shares of STEC were consistently making lower highs and lower lows, which is bearish technical price action. That said, STEC has now started to find buying interest at around $3.40 to $3.50 a share and it looks ready to reverse its downtrend and break out and head higher.

Traders should now look for long-biased trades in STEC if it manages to break out above some near-term overhead resistance levels at its 50-day moving average of $3.81 a share and then above more resistance at $3.90 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 484,086 shares. If that breakout triggers soon, then STEC will set up to re-test or possibly take out its next major overhead resistance levels $4.60 to its 200-day moving average at $5.23 a share.

Traders can look to buy STEC off any weakness to anticipate that breakout and simply use a stop that sits right below some key near-term support levels at $3.46 to $3.32 a share. One could also buy STEC off strength once it takes out those breakout levels with volume and then simply use a stop that sits right below $3.46 a share.

This stock is a favorite target of the short-sellers, since the current short interest as a percentage of the float for STEC is extremely high at 19.3%. If that breakout triggers soon, then STEC could easily experience a large short-squeeze, so make sure to have this name on your breakout trading radar.

Office Depot

Another stock that looks poised to trigger a major breakout trade is Office Depot (ODP), which is a global supplier of office products and services under the Office Depot brand and other proprietary brand names. This stock is off to a strong start in 2013, with shares up 34%.

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If you take a look at the chart for Office Depot, you'll notice that this stock has been uptrending strong for the last two months, with shares moving higher from its low of $3.55 to its recent high of $4.45 a share. During that uptrend, shares of ODP have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of ODP within range of triggering a major breakout trade.

Market players should now look for long-biased trades in ODP if it manages to break out above some near-term overhead resistance at $4.45 a share with high volume. Look for a sustained move or close above that level with volume that hits near or above its three-month average action of 7.43 million shares. If that breakout triggers soon, then ODP will set up to re-test or possibly take out its next major overhead resistance levels at $5.50 to its 52-week high at $6.10 a share. Any high-volume move above $6.10 could then push ODP towards $7 a share.

Traders can look to buy ODP off any weakness to anticipate that breakout and simply use a stop that sits right below its 50-day moving average at $3.95 a share. One could also buy ODP off strength once it takes out $4.45 a share with volume and then simply use the same stop right below its 50-day at $3.95 a share.

This is another stock that is a favorite target of the short-sellers, since the current short interest as a percentage of the float for ODP is very high at 18.4%. Shares of ODP could easily experience a monster short-squeeze from current levels, so make sure to put this name on your breakout trading radar.

Silicon Motion Technology

One name that's quickly moving within range of triggering a near-term breakout trade is Silicon Motion Technology (SIMO), which is a fabless semiconductor company that designs, develops and markets, high-performance, low-power semiconductor solutions for the multimedia consumer electronics market. This stock has been under pressure by the bears in 2013, with shares off by 20%.

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If you look at the chart for Silicon Motion Technology, you'll notice that this stock has just started to spike higher back above its 50-day moving average of $11.12 a share. That move is quickly pushing shares of SIMO within range of breaking out above some key near-term overhead resistance levels.

Market players should now look for long-biased trades in SIMO if it manages to break out above some near-term overhead resistance levels at $11.57 to $11.61 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 429,677 shares. If that breakout hits soon, then SIMO will set up to re-test or possibly take out its next major overhead resistance levels at its 200-day moving average of $13.29 a share to north of $14 a share.

Traders can look to buy SIMO off any weakness to anticipate that breakout and simply use a stop that sits right below some key near-term support at $10.70 a share. One can also buy SIMO off strength once it clears those breakout levels with volume and then simply use a stop that sits just below its 50-day moving average of $11.12 a share.

Vocera Communications

Another stock that's starting to trend within range of triggering a major breakout trade is Vocera Communications (VCRA), which provides mobile communication solutions focused on addressing critical communication challenges facing hospitals. This stock has been destroyed by the sellers so far in 2013, with shares off by 41%.

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If you look at the chart for Vocera Communications, you'll notice that this stock gapped down sharply early this month, with shares falling from $20 to its 52-week low of $11.99 a share with heavy downside volume. Following that gap down, shares of VCRA have started to rebound sharply with the stock uptrending from $11.99 to its recent high of $14.92 a share. That move has now pushed shares of VCRA within range of triggering a major breakout trade.

Traders should now look for long-biased trades in VCRA if it manages to break out above some near-term overhead resistance levels at $14.92 to $15.49 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 451,898 shares. If that breakout triggers soon, then VCRA will set up to re-fill some of its recent gap down zone that started at $20 a share. Some possible upside targets if VCRA gets into that gap with volume are $17 to its 50-day moving average at $18.47 a share.

Traders can look to buy VCRA off any weakness to anticipate that breakout and simply use a stop that sits right below some key near-term support at $13.75 a share. One can also buy VCRA off strength once it takes out those breakout levels with volume and then simply use a stop that sits a comfortable percentage point from your buy entry.

Affymax

My final breakout play that could make a monster move higher from current levels is Affymax (AFFY), a biopharmaceutical company developing novel drugs to improve the treatment of serious and often life-threatening conditions. This stock has been annihilated by the sellers so far in 2013, with shares off a whopping 90%.

If you look at the chart for Affymax, you'll notice that this stock has started to take out some near-term overhead resistance levels today at $1.60 to $1.65 with heavy upside volume. Volume has already hit 11.94 million shares, which is well above its three-month average action of 8.40 million shares. Shares of AFFY are now quickly moving within range of triggering a major breakout trade.

Traders should now look for long-biased trades in AFFY if it manages to break out above some near-term overhead resistance at $1.95 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 8.40 million shares. If that breakout triggers soon, then AFFY will set up to re-fill some of its previous gap down zone from March that started just above $3 a share. If AFFY gets into that gap with volume, it could even trade back towards $4 a share. Any high-volume move above $4 would then put another major gap down zone from February into play that started above $16 a share.

Traders can look to buy AFFY off any weakness to anticipate that breakout and simply use a stop that sits right below $1.50 a share or near $1.34 a share. One could also buy AFFY off strength once it clears $1.95 a share with volume and then simply use a stop right below $1.65 a share.

This stock is very popular among the bears, since its current short interest as a percentage of the float for AFFY is extremely high at 50.1%. This stock could literally explode higher of that breakout triggers due to the massive amount of shorts in the name, so make sure to put this on your breakout trading radar.

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

-- Written by Roberto Pedone in Madison, Wis.

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

Roberto Pedone, based out of Madison, 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.