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5 Stocks Poised for Breakouts - views
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 in Patriot Coal (PCX). On last Wednesday, in "my 8 Stocks Skyrocketing Higher," I flagged shares of PCX at $1.23 because the stock was ripping to the upside off of oversold conditions. I mentioned how the next breakout trade for PCX would trigger once it took out some near-term overhead resistance at $1.40 and then $1.60 a share with high volume.
Guess what happened? Shares of Patriot Coal went on to trigger that move, and that move came with massive upside volume. Shares of PCX have hit an intraday high today of $2.47 a share, and the stock is now quickly approaching its 50-day moving average of $3 a share. As you can see, trading something as simple as a high-volume breakout can lead to monster gains in a very short timeframe. It took PCX only five trading sessions to register gains of over 80%.
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.
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With that in mind, here’s a look at five stocks that are setting up to break out and trade higher from current levels.
Obagi Medical Products
One stock that’s flirting with a major breakout trade here is Obagi Medical Products (OMPI), a specialty pharmaceutical company that develops, markets and sells, and is a provider of topical aesthetic and therapeutic prescription-strength skin care systems and related products in the physician-dispensed market. This stock is off to a strong start in 2012, with shares up over 50%.
If you take a look at the chart for Obagi Medical Products, you’ll notice that this stock has been in a monster uptrend for the last six months, with shares soaring from a low of $10.05 to a recent high of $16.03 a share. During that large move to the upside, shares of Obagi Medical Products have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed OMPI within range of triggering a near-term breakout trade that will send the stock into new 52-week-high territory.
Traders should look for long-biased traders in OMPI if it can manage to trigger a break out above some near-term overhead resistance at $16.03 a share with high volume. Look for a sustained move or close above $16.03 with volume that hits near or above its three-month average action of 199,362 shares. If we get that action soon, then OMPI should be well on its way to hitting $20 a share, or possibly even higher. Keep in mind that there’s some takeover chatter surrounding this company, since shareholders just voted down a poison pill at it recent shareholders meeting.
One could be a buyer of OMPI off weakness and anticipate the breakout with a stop at around $13.50 a share. That $13.50 area sits right above its 50-day moving average, so it would be bullish for OMPI to continue to trend above that level. A better way is to just buy this stock off strength anywhere near $16.03, and then just use a stop near $15 to $14 a share. I would consider it very bullish if OMPI takes out a $16.03 soon and holds above that level.
It’s worth pointing out that OMPI sports a pretty decent short interest. The current short interest as a percentage of the float for OMPI is 5%. If that breakout triggers soon, then I expect to see a decent short-squeeze develop that sends OMPI screaming higher.
Another stock that’s trading within range of a major breakout trade is technology player Stratasys (SSYS), a manufacturer of 3D printers and production systems for the office-based rapid prototyping and direct digital manufacturing markets. This stock is off to a monster start in 2012, with shares up over 73% so far.
If you take a look at the chart for Stratasys, you’ll see that this stock was trading range bound since the start of June, between $42.70 to $43.68 on the downside and around $49 to $50.73 on the upside. Shares of Stratasys have started to break out above that upper end of that range today with shares now trading at $53 a share. That breakout is now quickly pushing SSYS within range of triggering another major breakout trade.
Market players should now look for long-biased traders in SSYS if it can manage to trigger a breakout above some overhead resistance levels at $54.96 to $55.66 a share with high volume. Look for a sustained move or close above those levels with volume that hits close to or above its three-month average action of 395,489 shares. If we get that action soon, then SSYS will enter all-time-high territory and the stock should easily trade north of $60 a share. Some possible targets are $70 to $85 if that breakout triggers and holds.
One could buy SSYS off weakness to anticipate that breakout, and simply use a stop around the high of the recent range near $50.73 a share. If you buy off weakness, then you can had to any long positions cone SSYS takes out $54.96 to $55.66 with high volume. You could also just buy off strength and get long once SSYS takes out those breakout levels with volume, and simply use a stop just below $54.96 a share.
This stock has some big-time short-squeeze potential if it breaks out soon. The current short interest as a percentage of the float for SSYS is a whopping 20.2%. The bears will be sweating bullets if that high-volume breakout triggers soon, so keep this name on your trading radar.
One stock in the audio and video equipment complex that’s starting to trigger a big breakout trade here is Neonode (NEON), which provides optical infrared touchscreen solutions for handheld and small to midsized consumer and industrial electronic devices. This stock is one of the hottest names around, with shares up over 100% in the last three months.
If you look at the chart for Neonode, you’ll see that this stock has been ripping to the upside since early April when it bottomed at around $2.85 a share. During that large move higher, shares of Neonode have been uptrending strong and making higher lows and higher highs, which is bullish technical price action. That move has seen a number of upside volume days during the last two months register above average volume. Now NEON has started to trigger a major breakout trade today since the stock is taking out some near-term overhead resistance at $6.80 a share with strong volume.
Traders should now continue to look for long-biased trades as long as NEON is trending above today’s low of $6.61 to $6.80 a share with strong upside volume flows. I would consider any upside volume day that registers near or above its three-month average action of 468,530 shares are bullish. At last check, volume today has hit over 800,000 shares with the stock up 9.3% to $7.11 a share. This strong move today has also pushed NEON into new 52-week-high territory.
If we continue to see NEON hold its trend above that breakout level of $6.80 a share, then this stock could easily be on its way toward $10 a share or possibly even higher. I would look to buy this stock off weakness and simply use a stop near $6.80 to $6.61 a share.
Another tech stock that’s setting up to trigger a near-term breakout is technology king Apple (AAPL). This stock is off to a strong start in 2012, with shares up around 50%. (It was also featured earlier today in "5 Stocks Ready to Slingshot Higher."
If you look at the chart for Apple, you’ll notice that this stock recently found some buying interest right around its 50-day moving average of $573.95 a share. After buyers stepped in, shares of AAPL started to soar and trigger a near-term breakout trade once it cleared some overhead resistance levels at $588.50 to $590 a share with decent volume. That move is now pushing AAPL within range of triggering another major breakout trade that could lead to a sharp move higher.
Market players should now look for long-biased traders in AAPL if this stock can manage to trigger a break out above some near-term overheard resistance at $618 to $620.25 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 19.1 million shares. If we get that action soon, then AAPL has a great chance of re-testing and possibly taking out its all-time high of $644 a share.
One could look to buy AAPL off weakness and simply anticipate the breakout with a stop just below today’s low of $599.65 a share. A better way to play this trade is to simply buy off strength once AAPL takes out $618 to $620.25 with decent volume, and then use a stop just below those key breakout levels. Either way, this stock will be in play if it can manage to hold a trend above those breakout levels with decent volume.
My final breakout trade idea for today is Jive Software (JIVE), whose social business software platform can be provided as a public cloud service or as a private cloud solution. This stock is off to a bullish start in 2012, with shares up over 30% so far.
If you look at the chart for Jive Software, you’ll see that this stock formed a double top back in April near $28 to $28.15 a share. After topping out, shares of Jive Software started to downtrend hard with the stock consistently making lower highs and lower lows, which is bearish technical price action. That move sent JIVE to its recent low of $14.26 a share. After hitting that low, shares of JIVE have rebounded sharply and hit a recent high of 21.97 a share. During that rebound, shares of JIVE have reversed its trend and started to make higher lows and higher highs, which is bullish action. That move has now pushed JIVE within range of triggering a near-term breakout trade.
Traders should now look for long-biased traders in JIVE if it can manage to trigger a breakout above some near-term overhead resistance at $21.97 a share with high volume. Look for a sustained move or close above $21.97 with volume that hits near or above its three-month average action of 703,969 shares. If we get that move soon, then JIVE should continue to spike higher towards its next significant overhead resistance level at $24.25 a share, or possibly even back to its double top zone near $28 a share.
One could look to buy JIVE off weakness and anticipate the breakout with a stop around its 50-day moving average of $19.43 a share. You could also get long off strength once it takes out $21.97 a share with high-volume, and simply use a stop near today’s low of $20.89 a share. Either way, I would suggest looking for long trades as long as JIVE is trending above $21.97 with strong upside volume flows. At last check, JIVE has hit an intraday high of $21.90 and volume is low at 190,000 shares traded.
This stock is a favorite name of the short-sellers. The current short interest as a percentage of the float for JIVE is an extremely high 37.8%. If that breakout triggers soon, then JIVE could easily experienced a monster short-squeeze, so keep this name on watch.
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.