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- 5 Stocks Setting Up to Break Out
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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 flagged recently was Obagi Medical Products (OMPI). Last Friday, I highlighted shares OBGI in my breakout stocks article, because the stock was in a clear uptrend and heading for a breakout over $16.03 a share.
Guess what happened? Shares of OMPI went on to trigger that breakout, and the stock quickly spiked to a recent high of $18 a share on strong volume. Some of that move is related to speculation in the market that OMPI is going to be bought out soon. On Tuesday, the company released an 8K that officially removed the shareholders’ rights provision, or what market players refer to as the “the poison pill.” This could have been done because OMPI is receiving attractive offers and it no longer wants to block any acquiring company from making a deal. If that’s the case, then this breakout could still be in the early innings since about 5% of OMPI’s float is sold short.
In that same article, I flagged Stratasys (SSYS) for a possible breakout trade if the stock could manage to take out some major overhead resistance levels at $54.96 to $55.66 a share. Shares of SSYS went on to hit $54.37 a share and subsequently have failed the breakout and sold off. I am highlighting this to demonstrate that not all breakouts works and you have to keep your losses small and move on. Fast traders, if they're nimble enough, can also take the other side of the trade and short a failed breakout.
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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.
One stock that’s closing in on a big breakout trade is Carmike Cinemas (CKEC), a digital cinema and 3D motion picture exhibitor in the U.S. serving small to mid-size non-urban markets. This stock is off to a hot start in 2012 with shares up over 115%.
If you take a look at the chart for Carmike Cinemas, you’ll notice that this stock has been uptrending strong since early June, with shares making higher lows and higher highs. During that timeframe, this stock has trended up from a low of $12.59 to a recent high of $15.57 a share. That move has quickly pushed CKEC within range of triggering a major near-term breakout trade.
Market players should now look for long-biased traders in CKEC if it can manage to trigger a breakout above some near-term overhead resistance at $15.57 to $15.80 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 281,233 shares. If we get that move soon, then this stock could quickly head towards $18 to $20 a share.
One could be a buyer of CKEC off weakness and anticipate the breakout with a stop just below its 50-day moving average of $14.27 a share. If you get long off weakness, then I would add to the position once CKEC clears $15.57 to $15.80 with high volume. A better strategy is to just buy off strength once CKEC clears those breakout levels with heavy volume. If you get long off strength, then simply use a stop a few percentage points below $15.57 a share.
It’s worth mentioning that CKEC sports a pretty decent short interest and has a small float of just 15.85 million shares. The current short interest as a percentage of the float for CKEC is 7.6%. The bears have also been increasing their bets from the last reporting period by 153.5%, or by about 752,000 shares. If this stock triggers that breakout soon, then we could easily see a sizable short-squeeze develop that spikes the stock big.
Another stock that’s moving within range of triggering a big breakout trade is Tesla Motors (TSLA), which designs, develops, manufactures and sells electric vehicles and electric vehicle powertrain components, including the Tesla Roadster, an electric sports car. This stock is off to a decent start in 2012 with shares up around 16%.
If you take a look at the chart for Tesla Motors, you’ll see that this stock formed a double-bottom chart pattern a few months ago at $26.83 to $27.11 a share. After marking that bottom, shares of TSLA have started to uptrend strong hitting a recent high of $34.50 a share. During that uptrend, shares of TSLA have been making mostly higher lows and higher highs, which is bullish technical price action. This stock has also started to move into breakout territory, since it’s cleared some near-term overhead resistance at $32.80 a share. That move is now pushing TSLA within range of an even bigger breakout trade.
Market players should now look for long-biased traders in TSLA if this stock can manage to trigger a bigger breakout trade above some overhead resistance levels at $34.50 to $34.68 a share, and then above $35.75 a share with high-volume. Look for a sustained move or close above those levels with volume that’s near or above its three-month average action of 1.2 million shares. If we get that action soon, then TSLA will have a great chance of re-testing and possibly taking out its recent highs of $38.47 to $39.95 a share.
One could buy TSLA off weakness to anticipate that breakout and simply use a stop just below the recent breakout level of $32.80 a share. If you buy off weakness, then I would add once TSLA clears those breakout levels mentioned above with high-volume. A higher probability trade would be to buy off strength once TSLA triggers that breakout, and then simply use a stop a few percentage points below $34.50 a share.
This stock is a favorite among the short-sellers. The current short interest as a percentage of the float for TSLA is a whopping 48.6%. This stock has some gigantic short-squeeze potential off any high-volume breakout. With that many shorts, TSLA could see some monster spikes higher if the stock can manage to clear some of those overhead resistance levels.
One name in the biotechnology and drugs complex that’s flirting with a major breakout trade is Synthetic Biologics (SYN), which is focused on the development of synthetic deoxyribonucleic acid (DNA)-based therapeutics and disease-modifying medicines for serious illnesses. This stock is off to a slow start in 2012, with shares off by around 10% so far.
If you look at the chart for Synthetic Biologics, you’ll see that this stock formed a perfect triple bottom chart pattern just a few weeks ago at around $1.71 to $1.77 a share. Following that bottom, shares of SYN blasted off its 50-day moving average to its current price of around $2.30 a share. During that sharp spike higher, the upside volume for SYN has been tracking in very strong. A number of recent up days have registered volume between 125,000 to 264,000 shares, which is well above its three-month average action of 70,048 shares.
Traders should now look for long-biased trades in SYN once it can manage to trigger a major breakout trade above some overheard resistance levels at $2.36 to $2.37 a share with high volume. Look for a sustained move or close above those levels with volume that’s near or above its three-month average action of 70,048 shares. If we get that move soon, then this stock has an awesome chance of re-testing and possibly taking out its 52-week high of $2.95 a share. I could even see his stock hitting $4 a share, if that $2.95 level gets taken out with volume.
I would recommend buying SYN off strength or weakness with a stop near today’s low of $2.12 a share, or just below $2 a share if you get it off extreme near-term weakness. If you want to buy off pure strength, then get long once SYN takes out $2.36 to $2.37 with high volume. At last check, SYN has hit an intraday high of $2.38 today and the volume is already over 72,000 shares.
Keep in mind that SYN sports a decent short interest as a percentage of its float of 6.4%. The tradable float for SYN is just 19.16 shares, so this stock could easily see a monster short-squeeze that sends shares soaring over $2.95. In fact, that’s the reason I think it could take off if we get the $2.95 breakout, since the shorts will be stuck in a stock with such a low float.
Another stock that’s setting up to trigger a near-term breakout trade is biotechnology and drugs player Amarin (AMRN), a late-stage biopharmaceutical company with expertise in lipid science focused on the treatment of cardiovascular disease. This stock has been on fire so far in 2012 with shares up over 90%.
This company has a major catalyst on the horizon, since it will go in front of the FDA on July 26 for the possibly approval of AMR101. (The stock shows up on a list of 4 Drug Stocks Facing FDA Approval Decisions in July.) AMR101 is a prescription-grade omega-3 fatty acid that is designed for the treatment of patients with very high triglyceride levels. With that major event just around the corner, this stock is a great candidate for a quick breakout trade ahead of the event.
If you look at the chart for Amarin, you’ll notice that this stock has been in a monster uptrend for the past four months, with shares soaring from a low of $7.01 to a recent high of $15.60 a share. During that massive move higher, shares of AMRN have consistently made higher lows and higher highs, which is bullish technical price action. That move has now pushed AMRN within range of triggering a near-term breakout trade. If that trade triggers, then AMRN could run pretty big ahead of its FDA meeting on July 26.
Traders should now look for long-biased traders in AMRN if this stock can manage to trigger a break out above some near-term overheard resistance at $15.60 a share with high-volume. Look for a sustained move or close above $15.60 with volume that hits near or above its three-month average action of 4.8 million shares. If we get that action soon, then AMRN could easily hit $20 a share before its FDA meeting.
I would look to buy AMRN off strength for this trade once it clears $15.60 with high-volume, and simply use a stop at around $15 or a bit higher. If you decide to buy off weakness, then I would use that recent low of $13.63 for possibly stop. This trade idea is only for a move prior to the meeting, so make sure if we get a quick pop to just take the profits.
The reason I like this idea ahead of the FDA meeting, is because the current short interest as a percentage of the float for AMRN is very high at 14.6%. If AMRN takes out $15.60 with volume, then the shorts are going to panic and think the market is betting big on an FDA approval. This could easily spark a massive short-squeeze in a very short timeframe, so keep AMRN on your radar as July 26 approaches.
My final idea that’s setting up to trigger a near-term breakout trade is biotechnology and drugs player Cerus (CERS), a biomedical products company focused on commercializing the Intercept Blood System to enhance blood safety. This stock is off to a bullish start in 2012 with shares up over 25% so far.
If you look at the chart for Cerus, you’ll see that this stock has been stuck in a nasty downtrend for the past four months and change, with shares dropping from a high of $4.53 to a recent low of $3 a share. During that downtrend, shares of CRES have consistently made lower highs and lower lows, which is bearish technical price action. That said, CRES has recently started to reverse that trend and make higher lows and higher highs. That move is pushing CRES within range of triggering a near-term breakout trade.
Traders should now look for long-biased traders in CERS if it can manage to trigger a break out above some near-term overhead resistance at $3.63 to $3.83 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 429,778 shares. If we get that move soon, then CRES will have an excellent chance of re-testing and possibly taking out its next major overhead resistance levels at $4.06 to $4.53 a share.
One could look to buy CERS off weakness and anticipate the breakout with a stop around its 50-day moving average of $3.53 a share. You could also buy off strength once $3.63 to $3.83 a share are taken out with high-volume, and then use the same stop near the 50-day. There’s also some near-term support at $3.40 a share you could use for a stop if you buy off weakness or strength.
This is a heavily-shorted stock, since the current short interest as a percentage of the float for CERS is 16.7%. Look for a decent short-squeeze to develop for CERS if that breakout triggers soon.
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.