Stock Quotes in this Article: AERL, CBM, OPXA, TC, TTWO

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 example of a recent successful breakout trade was personal and household products player PURE Bioscience (PURE). In “4 Stocks Under $5 Ripping Higher” on Oct. 9, I highlighted PURE because the stock was bouncing hard with decent volume, and it was quickly pushing within range of triggering a near-term breakout trade above $1.22 to $1.26 a share. I mentioned that PURE looked good for long trade as long as it as trending above $1 and then once it triggered that breakout with volume. I saw huge potential for a big move if that breakout hit.

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Guess what happened? The following day, PURE triggered that breakout with strong volume. The stock went on to hit a high of $1.68 a share on Thursday with monster volume. That’s a gigantic gain in just a few days for anyone who played that breakout. Shares of PURE have started to cool off today, but traders can still look for more upside if PURE manages to clear $1.68 with strong upside volume soon.

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.

Cambrex

One stock in the biotechnology and drugs complex that’s already starting to enter breakout territory is Cambrex (CBM), a life sciences company that provides essential products and services to accelerate drug discovery, development and manufacturing processes for human therapeutics. This stock has been blazing a path to the upside so far in 2012, with shares up over 85%.

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If you take a look at the chart for Cambrex, you’ll notice that this stock has been trending sideways for the last two months, with shares moving between $11.60 on the downside and $13.77 on the upside. As CBM has trended sideways, the stock has managed to hold above its 50-day moving average. A move outside of that sideways range will likely setup the next major trend for CBM.

Traders should now look for long-biased trades in CBM once it manages to break out above some near-term overhead resistance at $13.77 a share with high volume. Look for a sustained move or close above $13.77 with volume that hits near or above its three-month average action of 261,283 shares. If that breakout triggers soon, then CBM will have a great chance of re-testing or possibly taking out its next major overhead resistance at around $24 a share.

Traders can look to buy CBM off any weakness to anticipate that breakout, and simply use a stop that sits right below its 50-day moving average of $12.29 a share.

Take-Two Interactive Software

Another stock in the that’s setting up for a near-term breakout trade is Take-Two Interactive Software (TTWO), a developer, marketer and publisher of interactive entertainment for consumers around the globe. This stock is off to a weak start in 2012, with shares down by around 18%.

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If you take a look at the chart for Take-Two Interactive Software, you’ll see that this stock has also been trending sideways for the last month and change, with shares moving between $9.86 on the downside and $11.36 on the upside. During that timeframe, shares of TTWO have been able to hold its trend above its 50-day moving average. A move outside of that range for TTWO will likely setup the next major trend for the stock.

Market players should now look for long-biased trades in TTWO once it manages to take out some near-term overhead resistance levels at $11.26 to $11.36 a share, and then once it clears its 200-day at $12.43 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 volume of 2,073,780 shares. If that breakout triggers soon, then TTWO will have a great chance to re-test or possibly take out its next major overhead resistance levels at $13 to $14 a share.

One can look to buy TTWO off any weakness and anticipate that breakout and simply use a stop that sits right below its 50-day moving average of $10.23 a share. One could also buy off strength once TTWO takes out $11.26 to $11.36 with volume and then use a stop that sits just below $11 a share. I would add to either position once TTWO takes out its 200-day with strong upside volume.

Thompson Creek Metals

Another stock that’s trading within range of triggering a near-term breakout trade is Thompson Creek Metals (TC), which mines and processes molybdenum, operating mines, mills and metallurgical roasting facilities in Canada and the U.S. This stock has been hammered by the sellers so far in 2012, with shares down by over 55%.

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If you look at the chart for Thompson Creek Metals, you’ll notice that this stock recently sold off hard from its high of $3.87 to its low of $2.48 a share. During that sell-off, shares of TC were consistently making lower highs and lower lows, which is bearish technical price action. That said, this stock has frequently found buying interest at around $2.50 to $2.25 a share, and shares are starting to move within range of triggering a near-term breakout trade.

Market players should now look for long-biased trades in TC if it can manage to break out above some near-term overhead resistance levels at $2.75 to $2.84 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 2,416,360 shares. If that breakout triggers soon, then TC will have a great chance to re-test or possibly take out its next significant overhead resistance level at $3.87 to $4.50 a share.

One could look to buy TC as long as it’s trending above its 50-day moving average of $2.84 with strong upside volume flows. I would simply use a stop that sits right below $2.50 a share if you get long TC.

Opexa Therapeutics

Another stock in the biotechnology and drugs complex that’s trading very close to triggering a major breakout trade is Opexa Therapeutics (OPXA), which is engaged in developing personalized cellular therapies with the potential to treat major illnesses, including multiple sclerosis. This stock has been starting to perk up in the last six months, with shares up around 27%.

If you look at the chart for Opexa Therapeutics, you’ll see that this stock has been uptrending strong for the last two months and change, with shares soaring from 42 cents per share to its recent high of 87 cents per share. During that uptrend, shares of OPXA have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed OPXA within range of triggering a major breakout trade.

Traders should now look for long-biased trades in OPXA if it can manage to break out above some near-term overhead resistance levels at 80 to 87 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 113,175 shares. If that breakout triggers soon, then OPXA will setup to re-test or possibly take out its next significant overhead resistance levels at $1.15 to $1.28 a share. Any high-volume move above those levels will give OPXA an excellent chance to tag $1.50 to $1.75 a share.

One could look to buy OPXA off weakness as long as it’s trending above its 50-day moving average of 64 cents per share with strong upside volume flows. One could also just buy off strength once OPXA clears 80 to 87 cents per share and then simply use a stop that sits just below its 200-day at 68 cents per share, or even a bit higher near 75 cents per share.

Asia Entertainment & Resorts

One more stock that’s trading very close to triggering a near-term breakout trade is Asia Entertainment & Resorts (AERL), which engages in the promotion of VIP gaming rooms in Macau, the People’s Republic of China. This stock has been hit hard by the bears so far in 2012, with shares down by over 40%.

If you look at the chart for Asia Entertainment & Resorts, you’ll notice that this stock has been downtrending for the past two months, with shares falling from $4.45 to its recent low of $2.83 a share. During that downtrend, shares of AERL have been mostly making lower highs and lower lows, which is bearish technical price action. That said, this stock has started to come off that low of $2.83 and its setting up to take out its 50-day moving average of $3.37 a share, and possibly reverse its bearish downtrend.

Traders should now look for long-biased trades in AERL once it manages to clear some near-term overhead resistance at $3.13 to $3.37 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 135,455 shares. If that breakout triggers soon, then AERL will have a great chance to re-test or possibly take out its next significant overhead resistance levels at $3.80 to $4.45 a share. Any high-volume move above those levels will then give AERL a chance to tag $4.83 to $5.52 a share, or possible even $6 a share.

One could look to buy AERL off any weakness to anticipate that breakout, and simply use a stop that sits right below some near-term support levels at $3 to $2.83 a share. A better strategy might be to buy AERL once it clears its 50-day at $3.37 with strong volume, and then use a stop just below $3.13 to $3 a share. I would add to either position once AERL clears $3.80 to $4.83 a share with volume.

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.