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5 Stocks Poised for Breakouts - views
WINDERMERE, Fla. (Stockpickr) -- U.S. stocks are stuck in a tight trading range today as market players digest news that China plans to stick to its commitment to invest in the battered eurozone and that European finance ministers were potentially going to delay payments on the latest bailout deal.
China’s Central Bank Governor Zhou Xiaochuan said that China would play a role in helping Europe come back from its sovereign debt issues. It sounds like China is waiting until it knows for sure that Greek deal is going to get done before stepping in to the market and making a big capital commitment.
At last check, the Dow Jones Industrial Average was trading lower by 34 points, and the S&P 500 was advancing by 2 points. The tech-heavy Nasdaq was leading the major indices, jumping higher by 15 points. Despite the narrow range in the overall markets, a number of stocks are knocking on the door of major breakouts.
One of the most powerful technical moves that you can trade in the markets is when a stock triggers a major breakout. Just take a look at the monster move higher in Apple (AAPL) from when I highlighted it here for a breakout trade. Shares of Apple soared right after it broke out above its former all-time high of $460 to its current price of $517 a share in just a couple of weeks. That’s a move of over 70 points in a very short timeframe.
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.
Here‘s a look at a number of stocks that are setting up to break out and potentially trade higher from current levels.
Melco Crown Entertainment
One stock that’s trading within range of a big breakout is casino player in the Chinese Macau market Melco Crown Entertainment (MPEL). This stock has been ripping higher so far in 2012, with shares up over 24%. That could be just the start of a much bigger move if the stock can manage to breakout in the near future.
If you take a look at the chart for Melco Crown Entertainment, you’ll notice that this stock formed a double bottom a few months ago between $8.19 and $8.32 a share. After marking that bottom, the stock took off and trended higher toward its current price of around $12 a share. That move higher for MPEL was very strong, with shares making higher lows and higher highs consistently, which is bullish price action. Now the stock has started to consolidate and trade range-bound between $11 and $12.27 a share
Market players should now watch MPEL for a breakout trade to trigger once the stock takes out $12.27 to $12.40 a share on high volume. Look for volume on a move and close above those levels that registers near or well above its three-month average volume of 6 million shares. If we get that action soon, then this stock has an excellent chance to trade back towards its $14 to $16.15 (its 52-week high) in the very near future.
Traders should look for long-biased trades in MPEL if the stock does break out soon above those overhead resistance levels I mentioned. I would simply use a mental stop near the 200-day moving average of $11.21 if you buy off weakness. If you buy off strength, use a tight mental stop just below the breakout levels.
Another stock that’s setting up for a big breakout is Toreador Resources (TRGL), an independent energy firm engaged in the exploration and production of crude oil with interests in developed and undeveloped oil properties in the Paris Basin, France. This stock hasn’t done much in 2012, with shares off by around 4.8%, but that could be about to change rapidly.
If you take a look at the chart for Toreador Resources, you’ll see that this stock has been in a monster uptrend since it found some big buying interest at around the $2.80 level late last year. Since buyers stepped into the stock around that level, shares of TRGL have soared to its current price of just under $5 a share. Now the stock is starting to flirt with a big breakout since shares are moving above some near-term overhead resistance levels.
Traders should watch TRGL for a breakout trade if the stock can manage to take out $4.79 to $4.81 on heavy volume. Look for volume on a move above those levels that registers near or well above its three-month average action of 164,235 shares. At last check, TRGL has hit a high today of $5.03 and volume is already over 315,000 shares.
Market players should look for long-biased trades in TRGL if the stock can manage to sustain a high-volume move and close over $4.79 to $4.81 a share. If we get that action soon, then this stock should re-test its next major overhand resistance at $5.50 a share. If that level is then taken out with volume, look for TRGL to run up towards $6 to $7 a share in the medium-term.
One stock that recently triggered a major breakout is NxStage Medical (NXTM), a medical device company that develops, manufactures and markets products for the treatment of kidney failure, fluid overload and related blood treatments and procedures. This stock is off to a solid start in 2012, with shares up over 20%.
If you look at the chart for NxStage Medical, you’ll see that this stock was sold off hard by the bears from its October high of $24.06 to a recent low of $15.42 a share. After hitting that low, the stock saw massive upside volume flow in as buyers found tremendous value. The stock then ran from $15.42 to its current price of around $21.40 a share. That run saw NXTM break out above some past overhead resistance at $20.05 to $20.13 a share on monster volume.
Traders should now watch NXTM to trigger its next big breakout once the stock moves above some near-term overhead resistance at $21.43 with volume. Look for volume on any move above that levels that registers near or above 559,600 shares. At last check the stock has hit a high today of $21.50 and volume is just over 100,000 shares traded. If we get that action, then this stock has an excellent chance to make a run at its October high of $24.06 a share, or possibly much higher.
Traders should now look for long-biased trades as long as NXTM is trending above $20 to $21.43 a share, and the upside volume is tracking in strong.
This stock also sports a very high short interest, since 11.5% of the tradable float is currently sold short by the bears. That high short interest could easily fuel a big short squeeze that spikes this stock big soon since the stock is starting to move above $21.43.
I also featured NxStage recently in "7 Stocks Rising on Huge Volume."
One name in semiconductor complex that’s very near trigging a big breakout is Teradyne (TER), a global supplier of automatic test equipment. This stock is off to a hot start in 2012, with shares up over 24%.
If you look at the chart for Teradyne, you’ll see that this stock has been in a monster uptrend since it tagged $11.63 a share back in November of last year. During that uptrend, the stock has been consistently making higher lows and higher highs, which is bullish price action. Whenever any stock makes higher lows and higher highs, it shows that the stock is in high demand among large traders, since they’re paying up to buy it on any dips.
Now TER is setting up to trigger a big breakout sine the stock is very close to taking out some near-term overhead resistance levels.
Market players should look for long biased traders if TER can manage to take out $17.13 to $17.50 on high-volume. Look for volume on a move above those levels that’s near or well above its three-month average action of 4.4 million shares. If we get that action soon, then this stock has a strong chance to trade back towards its next significant overhead resistance level at $19 a share.
Keep in mind that volume doesn’t have to be there for a stock to break out and trend higher, it’s just preferred to see a strong volume move since it raises the probability of the breakout working.
Traders should now look for long-biased trades in TER if that breakout triggers soon. You could buy it off weakness and anticipate the breakout with a mental stop just under some near-term support at $16.25 a share. One could also just buy off strength once the stock takes out $17.13 with volume, and then add more shares on a high-volume move over $17.50.
This is a heavily shorted stock since around 11.4% of the tradable float is currently sold short by the bears. That high short interest could spike this stock back towards $19 quickly, so keep this name on your breakout trading radar.
One more stock that’s starting to trigger a big breakout trade today is TeleCommunications (TSYS), a global supplier of automatic test equipment. This stock is off to a monster start in 2012 with shares up over 28%.
If you look at the chart for TeleCommunication Systems, you’ll notice that the sellers nailed this stock good taking it down from its October high of $4.03 to a recent low of $2.10 a share. After hitting that low, this stock saw buyers come in and support the price at around $2.25 to $2.30 a share on a number of trading sessions. Now shares of TeleCommunications Systems are starting to break out above some near-term overhead resistance levels.
Traders should now watch for TSYS to take out some near-term overhead resistance at $2.93 to $2.98 a share on high-volume. Watch for a move over those levels where volume hits close to or well above its three-month average action of 448,485 shares. A sustained high-volume move and close above those levels should set this stock up to trend back toward $3.38 to $3.71 (its 200-day) a share, or possibly much higher.
Market players should now look for long biased trades since TSYS is starting to move above those levels today and volume is decent. At last check, volume is over 382,000 shares and TSYS has hit a daily high of $3.09. I would keep a tight mental stop on this at around $2.65 to $2.80 a share if you get long off weakness. If this breakout is the real deal, then I doubt it even gets back under todays low of $2.85 a share.
To see more breakout candidates, check out the Breakout Stocks of the Week portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.
At the time of publication, author had no positions in stocks mentioned.
Jonas Elmerraji, based out of Baltimore, is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.