Stock Quotes in this Article: ALXA, CTCM, QTM, SIMO, SUPN

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 recent example of a successful breakout trade is biotech stock Sarepta Therapeutics (SRPT), which I flagged in Aug. 17's “5 Stocks Poised for Big Breakouts as it was starting to make some sharp spikes higher off of $9 a share with strong upside volume. I mentioned how this bullish price action was pushing SRPT within range of triggering a major breakout trade if the stock could clear some overhead resistance at $10.78 a share.

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Guess what happened? Just a week later SRPT exploded above $10.78 with heavy volume and went on to hit a high in September at $16.44 a share. That’s a huge gain in a very short timeframe, but SRPT wasn’t done. This stock defined the laws of gravity and exploded over 170% higher on Wednesday to hit an intraday high of $45 a share after the company said eteplirsen, its flagship product, met its primary endpoint in a phase IIb study in its treatment of Duchenne Muscular Dystrophy patients.

Breakout candidates are something that I tweet about on a daily basis. I frequently tweet out high-probability setups, breakout plays and stocks that are acting technically bullish. These are the stocks that often go on to make monster moves to the upside. What’s great about breakout trading is that you focus on trend, price and volume. You don’t have to concern yourself with anything else. The charts do all the talking.

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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.

 

Supernus Pharmaceuticals

One stock that’s trading very close to triggering a major breakout trade is Supernus Pharmaceuticals (SUPN), a specialty pharmaceutical company focused on developing and commercializing products for the treatment of central nervous system diseases, including neurological and psychiatric disorders. This stock has been on fire so far in 2012, with shares up a whopping 120%.

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This company has a catalyst on the horizon, since it has a PDUFA date on Oct. 19 for the possible approval for Trokendi XR, a once-daily extended release formulation of topiramate for epilepsy. (PDUFA stands for the FDA’s Prescription Drug User Fee Act.) A PDUFA date is the date on which the FDA has agreed to make a decision on the regulatory approval or rejection of a new drug’s marketability in the U.S. based on efficacy and safety data from clinical trials.

If you take a look at the chart for Supernus Pharmaceuticals, you’ll notice that this stock has just started to trend back above its 50-day moving average of $11.98, which is bullish technical price action. That move is quickly pushing SUPN within range of taking out some near-term overhead resistance levels.

Traders should consider long-biased trades in SUPN once it manages to break out above some near-term overhead resistance levels at $13.51 $14.15 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 89,279 shares. If that breakout triggers soon, then SUPN will have a great chance of re-testing or possibly taking out its next major overhead resistance level at $16.68 a share. Due to the PDUFA coming up shortly, the stock will have a great chance of taking $16.68 out if momentum traders pile into the stock ahead of the FDA meeting.

One could look to buy SUPN off any weakness to anticipate that breakout and simply use a stop that sits right below its 50-day moving average of $11.98 a share. One could also buy off strength once SUPN starts trending above $13.51 to $14.15 a share with high volume and then simply use a stop right below $12.85 a share.

Quantum

Another stock that’s setting up for a major breakout trade is Quantum (QTM), hich provides solutions for storing and protecting information in physical, virtual, clouds and big data environments. This stock is off to a weak start in 2012, with shares down by around 30%.

If you take a look at the chart for Quantum, you’ll see that this stock has been uptrending very strong for the last two months, with shares soaring higher from $1.20 to its recent high of $1.77 a share. That move has quickly pushed QTM within range of triggering a near-term breakout trade, if the stock can manage to take out the higher-end of its trading range.

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Market players should now look for long-biased trades in QTM once it manages to take out some near-term overhead resistance levels at $1.70 to $1.77 a share with high volume. Look for a sustained move or close above those levels with volume that tracks in close to or above its three-month average action of 1,712,170 shares. If that breakout triggers soon, then QTM will setup to re-test or possibly take out its next major overhead resistance levels at $2.09 to $2.19 a share. If that $2.19 level gets taken out with volume, then QTM could even tag $2.50 to $2.80 a share.

One can look to buy QTM off any weakness and anticipate that breakout and simply use a stop that sits right below some near-term support at $1.55 to $1.50 a share. One could also buy off strength once QTM takes out $1.70 to $1.77 with volume and then use a stop that sits just below its 50-day moving average of $1.59 a share.

Alexza Pharmaceuticals

Another stock that’s trading within range of triggering a major breakout trade is Alexza Pharmaceuticals (ALXA), which is focused on the research, development and commercialization of products for the acute treatment of central nervous system conditions. This stock has been hit hard by the sellers so are in 2012, with shares down by around 38%.

This is another biotech player with a major catalyst on the horizon. This company has a scheduled PDUFA date of Dec. 21 for its Adasuve product, which is designed for the treatment of agitation associated with schizophrenia or biopolar I disorder in adults.

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If you look at the chart for Alexza Pharmaceuticals, you’ll notice that this stock just recently started to bounce right off its 50-day moving average of $4.20 a share with decent volume. That bounce has now pushed ALXA within range of triggering a major breakout trade back above some near-term overhead resistance, and above its 200-day moving average at $5.30 a share.

Market players should now look for long-biased trades in ALXA if it can manage to break out above some near-term overhead resistance levels at $5.15 to $5.30 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 450,838 shares. If that breakout triggers soon, then ALXA will have a great chance of exploding higher and running up into its PDUFA meeting. Some possible upside targets off that breakout are $6 to $8 a share, and possibly even $9 a share.

One could look to buy ALXA once that breakout triggers above $5.15 to $5.30 with volume and then simply use a stop that sits just below some previous resistance at around $4.86 a share.

Silicon Motion Technology

Another stock that’s trading very close to triggering a major breakout trade is Silicon Motion Technology (SIMO), which designs, develops and markets high-performance, low-power semiconductor solutions for the multimedia consumer electronics market. This stock is off to a slow start so far in 2012, with shares down by over 20%.

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If you look at the chart for Silicon Motion Technology, you’ll see that this stock is just starting to exploded higher today by around 9%, as shares rip back above its 50-day moving average of $15.46 a share. This is already an impressive move, but an even larger breakout for SIMO is quickly setting up here. This move today is pushing SIMO within range of taking out some near-term overhead resistance levels.

Traders should now look for long-biased trades in SIMO if it can manage to break out above some near-term overhead resistance levels at $16.57 to $17.07 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 511,826 shares. If that breakout triggers soon, then SIMO could explode to the upside and re-test or take out its next significant overhead resistance levels at $19 to $22.20 a share.

One could look to buy SIMO off weakness as long as it’s trending above its 50-day moving average of $15.46 a share with strong upside volume. One could also just buy off strength once SIMO clears $16.57 to $17.07 with volume and then simply use a stop that sits just below $16.57 a share.

CTC Media

One more stock that’s nearing a major breakout trade is CTC Media (CTCM), which operates three Russian television networks, offering entertainment programming. This stock has been starting to heat up over the past three months, with shares up around 25%.

If you look at the chart for CTC Media, you’ll notice that this stock has been uptrending strong for the past two months, with shares soaring from a low of $7.08 to its recent high of $9.81 a share. During that uptrend, shares of CTCM have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed CTCM within range of triggering a major near-term breakout trade.

Traders should now look for long-biased trades in CTCM once it manages to clear some near-term overhead resistance at $9.81 a share with high volume. Look for a sustained move or close above $9.81 with volume that hits near or above its three-month average action of 468,889 shares. If that breakout triggers soon, then CTCM will have a great chance of re-testing or possibly taking out its next major overhead resistance levels at $11.40 to $11.79 a share.

One could look to buy CTCM off any weakness to anticipate that breakout, and simply use a stop that sits right below its 200-day at $9.25 a share, or around some near-term support at $8.96 a share. One could also buy off strength once CTCM clears $9.81 with volume, and then use a stop right below its 200-day.

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.