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5 Stocks Poised for Breakouts - 12218 views
The government said that retail sales jumped 1.1% in September, which marked the biggest gain in seven months and double what most economists had been looking for. Google reported a 26% jump in third-quarter earnings, helped by an increase in paid clicks. The company said its revenue jumped by 33% in the quarter at just short of $10 billion. Wall Street traders loved the news, pushing shares of Google up almost 6% to over $591 a share.
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At last check, the Dow Jones Industrial Average was up over 85 points while the S&P 500 had added almost 11 points. The tech-heavy Nasdaq was up by around 22 points. All of the major U.S. averages are now approaching some key breakout levels. Market players should watch the 11,716.84 level on the Dow, the 2,643.37 level on the Nasdaq and the 1,220.39 area on the S&P 500 for breakout conformation. A sustained move for all of the indices above those levels could spark more short-covering and much higher prices in the coming days or weeks.
The top traders in the world know that markets are made up of thousands of stocks in different sectors. With so many moving parts, there’s always some sector or stock that’s acting strong and setting up to breakout. Trading breakouts is not a new game on Wall Street. This strategy has been by legendary traders such as William O’Neal, Stan Weinstein and Nicolas Darvas.
Here's a look at a number of stocks that are setting up to break out and trade higher from current levels.
One stock that’s nearing a major breakout is Pharmacyclics (PCYC), a clinical-stage biopharmaceutical company focused on developing and commercializing small-molecule drugs for the treatment of cancer and immune mediated diseases. This stock is a clear market leader so far in 2011, with shares up over 100%.
If you take a look at the chart for Pharmacyclics, you’ll notice that this stock has been basing and forming a prefect sideways trading pattern between $10 and close to $13 a share for the past two months. This is creating a situation where the stock is building up tons of energy for its next powerful move. I say this because when a stock bases in a tight range, at some point it’s going to break out of that range as either the bears or bulls take full control of the stock.
Since PCYC continues to challenge the upper end of its current sideways trading pattern more often, the probability is that the bulls are a lot close to winning this battle. That conformation though won’t trigger until the stock takes out $13 to $13.09 a share with big volume. Right now the stock is just a stone throws away from triggering that breakout with shares changing hands near $12.70 a share.
You could be a buyer of this stock off any weakness and anticipate the breakout. You could simply use a mental stop at around $12 a share or right below its 50-day moving average of $11.24 a share if you want to give it more room. One could also just buy this stock off strength and get long once we take out $13 to $13.09 with strong volume. Look for volume that’s tracking in close to or above its three-month average action of 771,700 shares to confirm that the bulls are in full control.
Keep in mind that this stock has a rather high short interest with over 8% of the tradable float sold short by the bears. The short-sellers have also been increasing their bets from the last reporting period by 10.4%, or by about 412,600 shares. Any future breakout could spark a massive short squeeze since smart short-sellers know better than to stay short a stock breaking out with volume.
I also featured PCYC recently in "5 Stocks Showing Relative Strength in a Weak Market."
Another stock that has just started to enter breakout territory is Thoratec (THOR), which develops, manufactures and markets proprietary medical devices used for circulatory support. This stock is off to a solid start in 2011, with shares up over 29%.
If you take a look at the chart for Thoratec, you’ll notice that this stock recently formed a perfect double-bottom chart pattern at around $29.64 to $29.75 a share. After finding big buying support at those levels, the stock rebounded sharply in the past month with shares now trading just over $36 a share. Just today, the stock just started to challenge a key breakout level at $36.98 a share, since it hit $37.55 intraday.
Market players should now watch for this stock to close above $36.98 either today or in the coming days or weeks. A strong volume move and close above that level should be considered a very bullish development. On Thursday, a big up day for the stock, THOR registered 1.6 million shares traded, which is well above its three-month average volume of 850,300 shares.
You could be a buyer of this stock off any weakness and simply use a mental stop near $34.85, its last key overhead resistance level. If this breakout is the real deal, and we continue to trend higher above $37 a share, I would then add to any position once it takes out the next overhead resistance level at $40.65 a share. A move above that level should set this stock up to test its 2010 high near $48 a share.
A stock in nonalcoholic beverages complex that’s starting to break out is Hansen Natural (HANS), which, through its subsidiaries, develops, markets, sells and distributes beverages in the U.S. and internationally. This is another market-leading stock, with shares up over 80% so far this year.
If you take a look at the chart for Hansen Natural, you’ll notice the strong technical pattern for the last six months, with shares making mostly higher lows and higher highs. This is exactly the type of chart pattern that any investor should be hunting for when they want to see what a strong uptrending stock looks like. This stock is now starting to form another bullish pattern since shares are starting to break out above some past overhead resistance at $94.66 a share.
This is a major breakout for HANS since it not only marks a new 52-week high for the stock, but it also marks an all-time high. This means that just about anyone who has bought this stock is making money, while anyone short it is losing money.
You could be a buyer of this stock off any noticeable weakness to play this breakout trade. Simply use a stop that’s just below $94.66 in case this becomes a failed breakout attempt. Watch for volume into today’s close that’s tracking in close to or above its three-month average action of 1.3 million shares. A strong volume close on the stock above $94.66 would be a bullish sign and could indicate that higher prices are in the cards soon for HANS.
Hansen is one of TheStreet Ratings' top-rated beverage stocks.
A stock in the health care sector that has started to break out is Opko Health (OPK), a pharmaceutical and diagnostics company engaged in the discovery, development and commercialization of novel and proprietary technologies, primarily in the U.S., Chile and Mexico. This stock is off to a solid start this year, with shares up over 20%.
If you look at the chart for Opko Health, you’ll notice that this stock has been printing higher lows and higher highs since it bottomed at $3.15 in June. This is a bullish technical pattern to see in any stock, since it shows that traders are snapping up the stock on any dip. It also shows that the stock is in high demand since traders are paying up to own shares. The stock is now hitting an even bigger technical trigger since shares are starting to break out above some past overhead resistance at $5 to $5.03 a share on monster volume.
Volume for the last three trading sessions has registered 3.3, 4.2 and so far today 5 million shares traded. If the stock closes higher today, then that would mean that all three days were strong volume moves that smashed the stock’s three-month average volume of just 1.3 million shares. Whenever you see a high-volume breakout it dramatically increased the probability of higher prices for any stock in the future.
If you’re looking to buy this stock, you could simply get long on any noticeable weakness. I would place a mental stop a few percentage points below $5 a share, or even down near $4.70 a share. If this breakout is the real deal, then I doubt the stock will trade too much below those levels.
This is another stock that has a decent short interest since 9.9% of the tradable float is sold short by the bears. The short-sellers have also been increasing their bets recently by a whopping 28.9%, or by about 2.9 million shares. If I was short this stock, I would be concerned about all that volume pushing into this name as it breaks out. Keep this name on your radar for the coming days and weeks, since the potential for an even large short-squeeze is present.
I also highlighted Opko recent in "5 Stocks Insiders Are Buying."
Gentiva Health Services
One more stock that looks ready to trigger a major breakout is Gentiva Health Services (GTIV), which provides home health services and hospice care throughout the U.S. The bears have destroyed this stock so far in 2011, with shares off by around 82%. That said, the technicals are starting point to the possibility of sharp rebound for this stock in the coming days or weeks.
If you look at the chart for Gentiva Health Services, you’ll notice this stock has been hammered lower by the bears from its June high of $24.77 to its recent low of $2.81 a share. Since hitting that low, the stock has rebounded sharply to its current price at around $4.50 a share.
What I like about this rebound is that some monster upside volume moved into this name on Wednesday with 3.7 million shares traded. That upside volume was well above the stock’s three-month average action of 847,700 shares. Traders should watch for the volume to continue to track in strong as a sign that large institutional traders are buying up the stock at these depressed levels.
Market players should now also watch for a breakout trade to trigger if GTIV can manage to move above some near-term overhead resistance at $5.35 a share and then above its 50-day moving average of $6.17 a share. A sustained move above those levels should set this stock up to make a run at 7.50 to $8.50 a share, or possibly even higher. It’s worth pointing out that the stock is now starting to move above a key descending trend line, which could also be signaling that a bullish trend change is underway.
You could simply be a buyer of this stock off strength once it takes out $5.35 a share with volume. Look for volume that’s tracking in close to or above 847,700 shares. I would then add to any long position once the stock takes out its 50-day moving average of $6.17 a share with volume. Stay defensive with a mental stop a few percentage points below $5.35 in case it’s not ready to take off yet. You can also buy this stock off weakness with a mental stop near $4 a share and just anticipate the breakout.
Gentiva shows up on a recent list of 5 Stocks With High Debt Burdens.
-- 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.