Stock Quotes in this Article: ANR, SVNT, XNPT, SKUL, AUMN

 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.

One recent example of a successful breakout trade that I flagged was biotechnology player Zalicus (ZLCS). I featured the stock in “5 Stocks Under $10 Set to Soar” on July 26, when it was trading at around $1 per share. I mentioned that if ZLCS managed to hold some near-term support levels at 95 to 88 cents, and then take out some near-term overhead resistance levels at $1.09 to $1.10 a share with volume, then it could spike significantly higher.

Guess what happened? The stock never traded below 95 cents, and it went on to trigger that breakout over $1.09 to $1.10 a share with volume. The stock soared to $1.43 a share in just a few weeks. That entire move was accompanied by heavy volume, which is exactly what you want to see when a stock triggers a major breakout trade. It’s very possible that ZLCS is far from down going higher, but now the stock will need to clear $1.43 to $1.62 a share soon with volume to keep the uptrend in place.

>>5 Stocks Under $10 Set to Soar

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.

 

Savient Pharmaceuticals

One stock that’s trending very close to triggering a major breakout trade is Savient Pharmaceuticals (SVNT), a specialty biopharmaceutical company focused on developing and commercializing Krystexxa for the treatment of chronic gout. This stock has been hammered by the sellers so far in 2012, with shares down by over 60%.

If you take a look at the chart for Savient Pharmaceuticals, you’ll notice that this stock stopped trending higher in April and formed a double top at $2.41 to $2.42 a share. Following that top, shares of SVNT plunged all the way down to its recent low of 50 cents per share. During that slide lower, shares of SVNT were making lower highs and lower lows, which is bearish technical price action. That said, the stock then went on to form a double bottom at 50 cents per share, and it has now started to trend up and making higher lows. That change in trend is quickly pushing SVNT within range of triggering a major breakout trade.

Traders should now look for long-biased traders in SVNT once it manages to trigger a breakout trade above some near-term overhead resistance levels at 83 cents per share, and then 89 to 90 cents per 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 1,689,300 shares. If that breakout triggers soon, then SVNT could easily explode higher and trend back towards its 200-day moving average of $1.79 a share.

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One could look to buy SVNT off any weakness to anticipate the breakout, and simply use a stop that sits just below its 50-day moving average of 65 cents per share, or down around 58 cents per share. One could also just buy off strength once SVNT clears 83 cents, and then add above 90 cents, and simply use a stop just below 74 cents or around the 50-day at 65 cents.

One of reasons this stock has the potential to explode higher if it breaks out soon is because it sports a monster short interest. The current short interest as a percentage of the float for SVNT is a whopping 37.1%. With a current float of around 50 million shares, that means that 29.11 million shares are sold short by the bears.

Skullcandy

Another stock that’s trading within range of triggering a near-term breakout trade is Skullcandy (SKUL), which develops and distributes headphones and other audio accessories to retailers throughout the U.S. and to distributors in various countries worldwide. This stock is off to a strong start in 2012, with shares up over 25% so far.

If you take a look at the chart for Skullcandy, you’ll see that this stock has been uptrending very strong for the past three months, with shares trending higher from $11.92 to its current price of around $15.80 a share. During that uptrend, shares of SKUL have been consistently making higher lows and higher highs, which is bullish technical price action. Also in just the past couple of weeks, the upside volume for SKUL has started to expand dramatically above its three-month average volume. That recent uptrend has now pushed SKUL within range of triggering a breakout trade.

Traders should now look for long-biased traders in SKUL if this stock can manage to trigger a breakout trade above some key overhead resistance levels at $16.10 to $16.80 a share, and then above $17.76 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 volume of 479,467 shares. If SKUL manages to clear all of those levels soon, then this stock could be setting up to explode higher and take out its next major overhead resistance level at $19.75 a share.

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One can look to buy SKUL off any weakness to anticipate that breakout, and simply use a stop near its 200-day moving average of $14.52 a share. Or one could just buy off strength and get long once SKUL clears $16.10 to $16.80 a share, and then add over $17.76 a share, with a stop just below today’s low of $15.41 a share.

This stock has explosive upside potential because once again it’s another name the short-sellers are heavily involved in. The current short interest as a percentage of the float for SKUL is extremely high at 71.9%. That’s a massive amount of bears in a stock that has only 15.07 million shares available for trading. If SKUL continues to uptrend, then the shorts are going to be pressured more than ever to cover their positions and cut their losses.

Golden Minerals

A stock in the gold and silver complex that’s quickly approaching a breakout trade is Golden Minerals (AUMN), a precious metals producer primarily engaged in the operation and further development of its acquired Velardena gold, silver and base metals mines in the Mexico and in the advancement of the 100% owned El Quevar silver exploration property in Argentina. This stock is off to a slow start so far in 2012, with shares down by around 23%.

If you look at the chart for Golden Minerals, you’ll notice that this stock was hammered by the bears back in April after it formed a double top at around $8.77 to $8.76 a share. Following that top, shares of AUMN went on to plunge down to its recent low of $3.24 a share. During that slide lower, shares of AUMN were mostly making lower highs and lower lows, which is bearish technical price action. That said, the stock has now started to rebound and make higher lows, which could mean it’s ready for a trend change to bullish.

Market players should now look for long-biased trades in AUMN if it can manage to trigger a near-term breakout trade above some overhead resistance levels at $4.49 a share, and then above its 50-day moving average of 4.55 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 313,047 shares. If we get that action soon, then AUMN will have a great chance of re-testing and possibly taking out its next major overhead resistance levels at $5.45 to $5.94 a share, or possibly even its 200-day moving average of $6.49 a share.

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This is another stock that the short-sellers love, since the current short interest as a percent of the float for AUMN is rather large at 12.8%. This means a large short-squeeze could develop if that breakout triggers soon. One can look to buy this stock off any weakness, and simply use a stop around $4.11 to $3.80 a share. Or, just buy off strength once it clears its 50-day moving average of $4.55 a share with high volume, and then use a stop at around $4.20 a share.

XenoPort

Another stock in the biotechnology and drugs complex that’s setting up to trigger a major breakout trade is XenoPort (XNPT), which is focused on developing and commercializing a portfolio of internally for the treatment of neurological disorders. This stock is off to a monster start in 2012, with shares up around 120%.

If you look at the chart for XenoPort, you’ll see that this stock has been in a monster uptrend for the last six months, with shares skyrocketing higher from a low of $3.88 to a recent high of $8.79 a share. During that uptrend, shares of XNPT have been mostly making higher lows and higher highs, which is bullish technical price action. That strong uptrend has now pushed XNPT within range of triggering a near-term breakout trade.

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Traders should now look for long-biased traders in XNPT if this stock can manage to take out some near-term overhead resistance at $8.79 a share with high volume. Look for a sustained move or close above $8.79 a share with volume that hits near or above its three-month average action of 609,414 shares. If that breakout triggers soon, then XNPT has the chance to make an extremely large move to the upside. One possible target is the 2011 high for XNPT which sits at $11.34 a share. The reason I think XNPT could hit that level is because there’s very little overhead resistance after it clears $8.79.

One could be a buyer of XNPT off any weakness, and simply use a stop that sits just below some major near-term support at $7.50 to $7.30 a share. It’s possible that XNPT could pull back to $7 a share before it challenges that breakout, so key off those areas for near-term support. One could also just buy off strength once $8.79 is taken out with volume, and then simply use a stop at around $8 a share.

Alpha Natural Resources

My final idea today for a stock that could be ready to trigger a major breakout trade is coal player Alpha Natural Resources (ANR), a supplier and exporter of metallurgical coal for use in the steel-making process and a supplier of thermal coal to electric utilities and manufacturing industries across the country. The bears have murdered this stock so far in 2012, with shares down by over 60%.

If you look at the chart for Alpha Natural Resources, you’ll notice that this stock has been stuck in a nasty downtrend for the past six months, with shares plunging from over $20 to its recent low of $5.75 a share. During that massive move lower, shares of ANR have been consistently making lower highs and lower lows, which is bearish technical price action. That said, this stock has started to rebound and some strong upside volume has started to flow in to the name. That rebound has ANR making higher lows recently, and moving within range of triggering a near-term breakout trade.

Traders should now look for long-biased traders in ANR once it manages to clear some near-term overhead resistance levels at $7.27 to $7.84 a share, and then once it takes out its 50-day moving average of $7.90 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 16,007,300 shares. If that breakout triggers soon, then look for ANR to re-test and possibly take out its next significant overheard resistance levels at $9.74 to $11 a share. It’s even possible that ANR could hit $12 to $13 a share if we get a powerful rebound driven by short covering.

This is another heavily shorted breakout candidate, since the current short interest as a percentage of the float for ANR is 13%. The short-sellers have also been increasing their bets from the last reporting period by 24.7%, or by about 5.5 million shares. If the bears are caught pressing their bets near the lows, then ANR could see a powerful rebound develop.

One could look to buy ANR off weakness and simply use a stop right below $6.50 a share, or even down around $6.15 a share. One could also just buy off strength once ANR clears $7.24 to $7.84 a share, and then add more above its 50-day at $7.90 a share, with a stop just below $7.20 a share.

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

-- Written by Roberto Pedone in Winderemere, Fla.

 

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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.