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5 Stocks Poised for Breakouts - 69186 views
WINDERMERE, Fla. (Stockpickr) -- U.S. stocks are under heavy selling pressure today after a disappointing jobs reported spurred a fresh round of selling. Wall Street was surprised by the report since many economists had expected a strong jobs number that would have reflected a more robust economic recovery.
The Labor Department’s nonfarm payrolls report showed the economy added just 18,000 jobs in June, the lowest amount of jobs in nine months. This report was well below analysts’ forecasts, which had anticipated a gain of 90,000. The unemployment rate rose to 9.2%, which was also notably above the expected number of 9.1%.
Traders hit stocks hard off the report since the jobs number surprised the entire Street, coming in well below even the nearest analyst estimate. The Dow Jones Industrial Average traded down 100 points, and the S&P 500 fell over 14 points. The tech-heavy Nasdaq lost over 25 points as investors took risk off in almost every sector.
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Despite this weak action in the overall tape today, there are still plenty of stocks bucking the trend and trading higher. Some of the strongest names are even breaking out today as investors add to their favorite stocks. 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.
Here‘s a look at a number of stocks that look poised to break out and trade higher from current levels.
One video game maker that looks poised for a big breakout is Glu Mobile (GLUU), which is engaged in designing, marketing and selling games for mobile phones. Some of the popular games that Glu is licensed to produce are Call of Duty, Guitar Hero, World Series of Poker and Zuma. This stock is off to an incredible start in 2011, with shares up over 165%.
If you take a look at the chart for Glu Mobile, you’ll see that this stock has been making higher highs and higher lows for the past few months, which is a bullish technical sign. Now the stock is setting up for a major breakout if it can manage to trade above some past overhead resistance at $5.75 a share.
Shares of GLUU are currently trading just a few percentage points away from that major breakout level, with the stock around $5.60 a share. What traders should watch for in the coming days or weeks is for a strong volume move above $5.75. I would suggest looking for volume that’s well above the three-month average action of 2.6 million shares. Anything upside volume that’s above or close to that level, where the stock breaks out should be considered a bullish technical sign.
One could be a buyer of the breakout and simply use a mental stop just a few percentage points from your buy entry. I could easily see this stock trade back to its next significant resistance level at around $10 a share. Keep in mind that the last time this stock was trading over $6 a share was back in 2007. A move above $6 soon could open up the flood gates for momentum buyers to step in.
Another stock that’s already started to form a major breakout is BioSante Pharmaceuticals (BPAX), a specialty pharmaceutical company focused on developing products for female sexual health, menopause, contraception and male hypogonadism. This is another extremely hot stock, with shares already up over 100% so far in 2011.
If you take a look at the chart for BioSante, you’ll see that this stock has been forming a very bullish pattern of higher lows and higher highs for the past four months. I highlight this type of chart pattern often because this is exactly the type of action you see in a stock that wants to trade higher and that is in strong demand by large institutional traders.
What’s even more bullish now for BioSante is that the stock has started to break out above some past overhead resistance at around $3.20 a share. This breakout is a major move because the upside volume flowing into the stock today is very strong. Volume today is already over 3.4 million shares which is well above the three-month average volume of 2.2 million shares.
One could be a buyer of this stock on any weakness and simply stop out of the trade if you see it move back below the breakout level of $3.20 a share on big selling volume. The next significant resistance level on this stock will come into play at $4 to $5 a share, so if BioSante wants to run from here, there’s plenty of upside.
If you’re looking for a biotech that’s starting to break out, then take a look at Amylin Pharmaceuticals (AMLN), a biopharmaceutical company engaged in the discovery, development and commercialization of drug candidates for the treatment of diabetes, obesity and other diseases. This stock hasn’t done much in 2011, with shares down by just 2%.
Amylin and the next stock featured next in this article, Alkermes (ALKS), are both running higher today as the companies appear to be moving closer towards U.S. approval of diabetes drug Bydureon. Any potential positive news in the coming weeks should be monitored closely for both of these stocks because shares could soar in anticipation.
If you take a look at the chart for Amylin Pharma, you’ll see that this stock has started to break out above some past overhead resistance at around $14.28 a share on huge volume. Volume today is 7.3 million shares, which is way above the three-month average of 1.5 million shares. Traders are flocking to this stock today in hope of some very positive news soon Bydureon. An analyst at Jefferies put a note out today that said a new study of the drug should provide the safety data needed to win U.S. market approval.
The technical action in the stock is so strong today that the news has even pushed shares back above the 200-day moving average of $14.06 a share. Market players shouldn’t ignore the heavy volume on this stock, since it could mean that large institutional traders are piling into the stock before a big run is about to take place.
One could be a buyer of this breakout and simply use a mental stop just below $14.28 a share, or even give the stock some room just below the 200-day moving average. If AMLN wants to run higher from here, I doubt it will move much lower in then those levels in the near future.
It’s worth noting that the current short interest on AMLN is rather high at around 7.1% of the tradable float. If the shorts get nervous ahead of any positive developments for Bydureon, then this stock could really explode in the coming days or weeks.
As of the most recently reported period, Amylin is one of the top holdings of Carl Icahn, with a 14.4 million-share position in the stock.
Another biotech player that’s demonstrating some breakout action is Alkermes (ALKS), an integrated biotechnology company engaged in the business of developing, manufacturing and commercializing medicines for the treatment of prevalent, chronic diseases. This stock is off to a solid start in 2011, with shares up over 58%.
If you take a look at the chart for Alkermes, you’ll see that this stock is already in breakout mode with shares recently moving above some big overhead resistance at around $18.77 a share. With the stock currently trading at around $19.50 a share, its already one point above that key breakout price of $18.77, and volume is extremely strong.
Volume today has already registered over 1.4 million shares which is well above the three-month average action of 955,000 shares. If this move is the “real deal,” then watch for ALKS to make a run at its next significant overhead resistance level that’s well over $25 a share. That’s a lot of upside from here, so this could be a solid breakout play if the strength continues.
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One could simply be a buyer of this stock on any weakness, and stop out of the trade if you see it move back below the breakout level of $18.77 with strong volume. Look for upside volume to continue to expand as a sign that ALKS wants to trend much higher from this breakout point.
One final breakout play that’s showing solid strength in this weak tape today is Apple (AAPL), which designs, manufactures and markets a range of personal computers, mobile communication and media devices, and portable digital music players, and sells a range of related software, services, peripherals, networking solutions and third-party digital content and applications. This stock is off to a decent start in 2011, with shares up over 10%.
If you take a look at the chart for Apple, you’ll see that this stock is moving very close to a major breakout ahead of their quarterly report which is set for July 19 after the market close. Traders are clearly anticipating a bullish earnings release from Apple and they’re jumping into the stock well ahead of the conference call so they can capture the most upside.
Apple is currently trading at around $358 a share, which is just 7 points off of its all-time higher of $365 a share. The stock has started to breakout above some past overhead resistance at around $355 a share, and it’s now closing in on the last resistance price ($361) between the stock and its all-time high. If Apple hits an all-time high above $365 in the coming days that will mean that just about anyone who has ever bought the stock is making money.
One could be a buyer of this stock as soon as you see it clear $365 with strong volume. Look for volume that’s close to or solidly above the three-month average action of 14.3 million shares. I would even suggest playing some near-the-money call options on Apple if you see the breakout, and simply sell the position ahead of the report, or hold it through if you’re really bullish on this name.
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.