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5 Stocks Poised to Break Out - 32236 views
WINDERMERE, Fla. (Stockpickr) -- Continued concerns over the fate of the U.S. deficit-reduction talks in Washington have left stocks mixed today on Wall Street. Congress is currently trying to reach a deal over the debt ceiling so the U.S. can avoid an unprecedented default.
Some outside observers had hoped a deal would have been reached by now, and rumors even circulated yesterday that a deal was in place between President Obama and the speaker of the House John Boehner. However, those deal rumors were quickly shot down adding even more uncertainty to the mix.
In midday action the Dow Jones Industrial Average is off by around 30 points at 12,693.49 and the S&P 500 is up just 1 point at 1345.11. The tech-heavy Nasdaq is clearly the strength in the market since its trading up 22 points to 2856.49.
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All three of the major market indexes have racked up some solid returns as we approach the inevitable outcome of the debt ceiling. There’s an old saying on Wall Street that goes, “buy the rumor, sell the news,” and that might come into play here if we get positive outcome, which I think is highly likely. Let’s face it the current administration would be committing political suicide if they let the U.S. default on its debt.
That means that U.S. stocks could sell off sharply if Congress can get its act together and reach a deal. A nice selloff would actually be healthy for this market since it would hopefully lead to a reset for many stocks that have been acting strong and trending higher for the past couple of months. It would give the market a chance to work off some overbought conditions.
The top traders in the world know that markets are made up of thousands of stocks and tons of sectors. With so many moving parts, there’s always some sector or stock that’s starting to break out breaking and move higher. Often times those moves will not be dependent on what the overall market is doing.
Trading breakouts is not a new game on Wall Street. This strategy has been by legendary traders such as William O’Neal, Stan Weinstein and Nicolas Darvas. With that in mind, here‘s a look at a number of stocks that look poised to break out and potential trade higher from current levels.
One stock that looks ready to breakout is L&L Energy (LLEN), which is engaged in the businesses of coal mining, coal washing, coal coking and coal wholesaling. L&L Energy’s operations are conducted in Yunnan and Guizhou provinces in the southwest region of China. This stock has been hammered by the bears so far in 2011 with shares off by over 40%.
If you take a look at the chart for L&L Energy, you’ll see that this stock is approaching some key breakout levels that traders need to be watching. The first breakout level that the stock has already punched through is its 50-day moving average of $5.45 a share. The second and more important level is some overhead resistance at $5.70 to $5.76 a share. A move above those levels could bring in some momentum traders who love to play breakouts.
One could be a buyer of this breakout and simply place a mental stop at right around the 50-day moving average, which also is right around the top of an uptrend line that has been forming since late June. A move over $5.76 should set the stock up for a run towards $6.50 a share or possibly even higher into the mid-$7s. I would watch for a move over $5.76 that comes on heavy volume that’s close to or greater than its three-month average action of 469,000 shares.
It’s worth noting that this is one heavily shorted stock by the bears. The current short interest as a percentage of the float for LLEN is an extremely large 19.7%. Traders should eye this name for a move above $5.76 a share, because it could spark a huge short squeeze for the stock in the coming days or weeks.
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Another stock that’s already starting to breakout is Acacia Research (ACTG), which, through its operating subsidiaries, acquires, develops, licenses and enforces patented technologies. Acacia Research operating subsidiaries generate revenues and related cash flows from the granting of rights for the use of patented technologies, which its operating subsidiaries own or control. This stock has been a monster performer so far in 2011 with shares up over 70%.
In case you have been asleep at the wheel, stocks with big patent portfolios have been in play on Wall Street this week. Shares of patent player InterDigital (IDCC) have skyrocketed over 70% in the past five days after rumors circulated that Google (GOOG) might be interested in buying the company. This news is going to get more and more traders interested in Acacia since it also is a patent portfolio play.
If you take a look at the chart for Acacia Research, you’ll see that this stock has just started to break out above some past overhead resistance at around $42 a share. The bullish thing about this breakout is that it’s coming on huge volume. Volume on Thursday (an up day) was 1.49 million shares which is well above its three-month average volume of 398,000 shares. Volume today has already registered over 800,000 shares with the stock up sharply.
One could be a buyer of this stock on any weakness and simply stop out a few percentage points below your entry incase ACTG isn’t ready for the primetime yet. Keep in mind that an IDCC-type move could happen here, and it doesn’t hurt that ACTG is now trading at all-time highs. When a stock starts to print all-time highs, it’s an extremely bullish trend that often times means a stock is setting up to move significantly higher.
Acadia is one of the top holdings of George Soros.
If you’re looking for a metal mining play that’s starting to break out, then check out Denison Mines (DNN), which is engaged in uranium exploration, development, mining and milling with uranium mining projects in both the U.S. and Canada and development projects in Canada, the United States, Zambia and Mongolia. This stock has taken it on the chin so far this year, with shares off by over 35%
If you take a look at the chart for Denison Mines, you’ll see that this stock has started to move above some past overhead resistance at around $2.03 a share. This move today is coming after the stock bounced off of its rising uptrend line that started back in late June. That rising trend line shows a pattern of higher lows for DNN, which is a very bullish chart pattern. It often times means that large traders are paying up for a stock each time it dips.
What’s even more bullish about the breakout move today is that it’s coming on huge volume. Volume today has already clocked in at over 2.6 million shares, which is well above its three-month average of 1.6 million shares.
If you’re bullish on this stock, one could be a buyer on this breakout and look for a run back towards some past overhead resistance at around $2.40 to $2.50 a share, or possibly back towards its 200-day moving average of $2.69 a share. I would add aggressively to any long position if DNN takes out some more overhead resistance at around $3 a share. If you get long, you could simply stop out of the trade if DNN moves back below its 50-day moving average of $1.95 on heavy volume.
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If you’re looking for a biotech player that looks poised to breakout, then put Amarin (AMRN) on your trading radar. This company is a clinical-stage biopharmaceutical player focused on developing improved treatments for cardiovascular disease. Amarin’s development programs capitalize in the field of lipid science and the therapeutic benefits of essential fatty acids in cardiovascular disease. This stock is off to a fantastic start so far in 2011, with shares up over 76%.
If you take a look at the chart for Amarin, you’ll see that this stock has been trading inside of a channel chart pattern for the past two months. During that time, the stock has been trading between the upper-end at around $15 a share and the lower-end at around $13.30 a share. Traders should now watch for a breakout above the upper-end if they’re bullish on AMRN.
A move above $15.02 a share and then above its 50-day moving average of $15.74 a share could trigger a big bullish run for AMRN. I would suggest watching for a breakout that comes on big volume above these levels. Look for volume that’s close to or well above its three-month average action of 2.9 million shares. This stock has a ton of upside if the breakout does hit because this name was just trading at $19.87 back in early June.
One could simply be a buyer of this stock right now and anticipate the breakout above $15.02 a share. I would add to any long position aggressively if you see AMRN trade above $15.74 on big volume. The only way I would get short this stock is if you see it trade below $13.30 on heavy volume, since that level has already triggered a double bottom support zone.
One more breakout play that also comes out of the biotech complex is Curis (CRIS). This is a drug discovery and development firm committed to leveraging signaling pathway drug technologies in seeking to develop targeted cancer therapies. Curis conducts its research programs both internally and through strategic collaborations. This is another major winner so far in 2011 with shares up over 110%.
If you take a look at the chart for Curis, you’ll see that this stock has started to break out above some near-term overhead resistance at around $4 to $4.03 a share on big volume. This move started today and volume has already clocked in at over 765,000 shares which is well above its three-month average action of 573,000 shares. Some of this bullish behavior in CRIS could be traders getting into the stock ahead of their earnings report which is due out on July 28.
This move today now sets up CRIS for a second major breakout if it can manage to trade above some big overhead resistance at around $4.42 a share. A move above that level should generate some notable interested among momentum traders since it would mark a new 52-week high for CRIS.
One could be a buyer of this stock once it clears $4.42 or you could buy below that level and anticipate the breakout. One could simply stop out of the trade if you see CRIS trade back below $4.00 a share on heavy volume. The all-time high on this stock is just above $6 a share, so this stock could be setting up to challenge or take out those highs soon.
It’s worth pointing out that CRIS is a heavily shorted stock. The current short interest as a percentage of the float for CRIS is a rather large 7.5%. The short-sellers have also been increasing their bets from the last reporting period by 11.3%, or by about 564,000 shares. A major breakout for CRIS could easily spark some big short covering that powers the stock higher in the coming days or weeks.
To see more breakout candidates, check out the Breakout Stocks of the Week portfolio on Stockpickr.
-- Written by Roberto Pedone in Winderemere, Fla.
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.