Stock Quotes in this Article: GHDX, PPHM, Z, ZNGA, YELP

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.

An example of a recent successful breakout trade is integrated equipment services player H&E Equipment (HEES), which I featured in Jan. 3's “3 Stocks Spiking Higher on Unusual Volume.” At that time, shares of HEES were trending higher and starting to move back above its 50-day moving average of $15.15 a share with above-average volume. That move was quickly pushing HEES within range of triggering major breakout trade above some near-term overhead resistance levels at $15.65 to $16.21 a share.

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Guess what happened? Shares of HEES triggered that breakout the following day with strong upside volume. The stock tapped an intraday high on Thursday of $17.32 a share and volume finished well above its three-month average action of 248,352 shares. I mentioned in the original piece that HEES could hit $18 to $20 if that breakout triggered soon, and I still feel those targets are achievable. This breakout has now pushed HEES outside of its recent range bound trading pattern with volume, which is bullish technical price action.

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.

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Zynga

 

One stock that’s trending very close to triggering a near-term breakout trade is Zynga (ZNGA), which develops online games designed for play on social networking sites. This stock has been hammered by the bears during the last six months, with shares off by a whopping 53%.

If you take a look at the chart for Zynga, you’ll notice that this stock has been uptrending modestly strong for the last two months, with shares rising from a low of $2.09 to its recent high of $2.73 a share. During that uptrend, shares of ZNGA have been consistently making higher lows and higher highs, which is bullish technical price action. Shares of ZNGA have recently started to bounce right off its 50-day moving average of $2.34 a share and are quickly moving within range of triggering a near-term breakout trade.

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Traders should now look for long-biased trades in ZNGA if it manages to break out above some near-term overhead resistance at $2.73 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 20.2 million shares. If that breakout hits soon, then ZNGA will set up to re-test or possibly take out its next major overhead resistance levels at $3.27 to $3.40 a share. Any high-volume move above $3.40 will then give ZNGA a chance to re-fill its previous gap down zone from last July that started near $5.25 a share.

Traders can look to buy ZNGA off any weakness to anticipate that breakout and simply use a stop that sits right below some key near-term support levels at $2.29 to $2.21 a share. One could also buy ZNGA off strength once it takes $2.73 a share with volume and then simply use a stop that sits just below its 50-day moving average of $2.34 a share. I would add to either position if ZNGA clears $3.27 to $3.40 with volume, since that will give the stock a chance to get into that gap from last July.

Yelp!

 

Another stock that’s starting to move within range of triggering a major breakout trade is Yelp! (YELP), which connects people with local businesses. Its platform features more than 22 million reviews of almost every type of local business, from restaurants, boutiques and salons to dentists, mechanics, plumbers and more. This stock has been hammered hard by the bears during the last three months, with shares off by 28%.

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If you take a look at the chart for Yelp!, you’ll notice that this stock has been uptrending strongly for the last month and change, with shares moving higher from a low of $16.32 a share to its intraday high of $20.77 a share. During that uptrend, shares of YELP have been consistently making higher lows and higher highs, which is bullish technical price action. That move has quickly pushed shares of YELP within range of triggering a major breakout trade.

Market players should now look for long-biased trades in YELP if it manages to break out above some near-term overhead resistance levels at $20.20 to $20.60 a share and then once it clears its 200-day moving average at $22.05 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 977,430 shares. If that breakout triggers soon, then YELP will set up to re-test or possibly take out its next major overhead resistance levels at $24.51 to $26. Any high-volume move above $26 will then put $27.65 to $29 into range for shares of YELP.

Traders can look to buy YELP off any weakness to anticipate that breakout and simply use a stop that sits just below some key near-term support levels at $19 to $18 a share. One could also buy off strength once YELP clears those breakout levels with volume and then simply use a stop that sits right around its 50-day moving average of $19.57 a share.

Zillow

 

One name that’s trending very close to triggering a major breakout trade is Zillow (Z), which provides information about homes, real estate listings and mortgages through its Web site and mobile applications. This stock has been hammered by the bears during the last six months, with shares down by 22.9%.

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If you look at the chart for Zillow, you’ll notice that this stock has been uptrending strongly for the last month and change, with shares soaring from a low of $23 to its recent high of $29.20 a share. During that uptrend, shares of Z have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of Z within range of triggering a major breakout trade.

Market players should now look for long-biased trades in Z if it manages to break out above some near-term overhead resistance levels $28.94 to $29.10 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 956,462 shares. If that breakout triggers soon, then Z will set up to re-fill its previous gap down zone from November that started near $36 a share.

Traders can look to buy Z off any weakness to anticipate that breakout and simply use a stop that sits close to some key near-term support levels at $27.13 to $26 a share. One can also buy off strength once Z clears those breakout levels with volume and then use a stop that sits just below its 50-day moving average of $28.50 or one that sits near $27.13 a share.

Genomic Health

 

Another stock that’s trending very close to triggering a near-term breakout trade is Genomic Health (GHDX), which is engaged in the development and commercialization of genomic-based clinical laboratory services that analyze the underlying biology of cancer, allowing physicians and patients to make individualized treatment decisions. This stock has been trashed by the sellers during the last three months, with shares off by 23%.

If you look at the chart for Genomic Health, you’ll notice that this stock gapped down big in November from close to $33 a share to a low of $25.25 a share with heavy downside volume. Following that gap lower, shares of GHDX then went on to enter a sideways trading pattern between $26.33 on the downside and $28.59 on the upside. A high-volume move above the upper-end of that sideways trading pattern will now push shares of GHDX into breakout territory and into that previous gap down zone.

Traders should now look for long-biased trades in GHDX if it manages to break out above some near-term overhead resistance levels at $28.57 to $28.59 a share and then once it clears its 50-day moving average of $28.60 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 252,292 shares. If that breakout hits soon, then GHDX will set up to re-fill its previous gap down zone from November that started near $33 a share. A possible first target for GHDX if it gets into that gap is its 200-day moving average at $31.93 a share.

Traders can look to buy GHDX off any weakness and simply use a stop that sits close to some near-term support levels at $26.78 to $26.33 a share. One can also buy off strength once GHDX takes out those breakout levels with volume and then simply use a stop that sits right around $26.78 a share.

Peregrine Pharmaceuticals

 

My final idea that’s trending very close to triggering a major breakout trade is Peregrine Pharmaceuticals (PPHM), a biopharmaceutical company developing first-in-class monoclonal antibodies for the treatment and diagnosis of cancer. This stock has been on fire during the last three months, with shares up a whopping 62%.

If you look at the chart for Peregrine Pharmaceuticals, you’ll notice that this stock has been trending sideways during the last month, with shares moving between $1.64 on the upside to $1.08 on the downside. Shares of PPHM have recently started to bounce right off its 200-day moving average of $1.21 a share and its quickly moving within range of breaking out above the upper-end of its sideways trading pattern. If that breakout were to occur, then shares of PPHM would start to move within range of a huge gap down zone from last September that started at $5.50 a share.

Traders should now look for long-biased trades in PPHM if it manages to break out above some near-term overhead resistance levels at $1.44 to $1.45 a share and then once it clears some more overhead resistance levels at $1.64 to $1.94 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 3.8 million shares. If that breakout triggers soon, then PPHM will set up to re-fill some of its previous gap down zone from September that started at $5.50 a share. A reasonable target before any test of that $5.50 area is $3 a share if we get into that gap with volume.

Traders can look to buy PPHM off any weakness to anticipate that breakout and then simply use a stop that sits just below some key near-term support levels at $1.12 to $1.08 a share or even its 50-day moving average at $1.03 a share. Traders can also just buy PPHM off strength once it takes out $1.44 to $1.45 a share and then simply use a stop that sits just below its 200-day moving average at $1.21 a share. I would add to either position once PPHM takes out $1.64 to $1.94 a share with heavy upside 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 technical analysis for small- and large-cap stocks, options, futures, commodities and currencies. Roberto studied international business at the Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany. His work has appeared on financial outlets including CNBC.com and Forbes.com. You can follow Pedone on Twitter at www.twitter.com/zerosum24 or @zerosum24.