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5 Stocks Poised for Breakouts - views
WINDERMERE, Fla. (Stockpickr) -- Stocks are trending higher Tuesday, with the S&P 500 hitting multi-year highs and the Dow Jones Industrial Average flirting with the key psychological level of 13,000, following a better than-expected consumer confidence data. The positive consumer confidence came close to sending stocks skyrocketing, but a disappointing report on durable goods orders and housing kept equities in check.
Durable goods orders fell 4% in January, which marked its biggest drop in almost three years, according to the Commerce Department. Home prices fell for the fourth straight month in December, with 18 of the 20 cities tracked posting a decline. On the plus side, consumer confidence jumped to a one-year high in February, registering 70.8 vs. Wall Street estimates of 63, according to the Conference Board.
At last check, the Dow was trading higher by 23 points, and the S&P 500 was advancing by 3.7 points. The tech-heavy Nasdaq was trending up by 18 points. If the market can manage to punch through and close above that key psychological level on the Dow at 13,000, then we could easily see stocks continue to trend higher in the very short-term. This action will force the bears to cover some their short positions as many sectors and stocks continue to breakout and trend higher.
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.
Goldman Sachs Group
A major banking player that’s trading very close to triggering a near-term breakout is Goldman Sachs Group (GS). This stock is off to a very hot start in 2012, with shares up around 30%. That strong move could be above to get even stronger since the stocks is trading within range of triggering a big breakout.
If you take a look at the chart for Goldman Sachs Group, you’ll notice that this has been trading range bound for the past few weeks between $117.60 on the upside and around $111.40 a share on the downside. So far, the stock has been supported at around $112 to $114.40 and it has predominately trended above its 200-day moving average of $112.21 during that timeframe.
Now shares of Goldman are quickly approaching a re-test of the upper-end of that trading range at $117.91, and potentially breaking out above it.
Traders should keep an eye on GS for a breakout trade to trigger once the stock takes out $117.60 to $117.91 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 7.2 million shares. If we get that action soon, then GS has a great chance to trade back towards its next significant overhead resistance levels at $120 to $125 in the very near future.
Traders should look for long-biased trades in GS as long as the stock is trending above those key breakout levels. I mentioned that the volume should be near or above its three-month average volume, which is what I prefer to see when a stock breaks out. It doesn’t mean that volume has to be that high; it just increases the probability of a successful breakout if it comes with high-volume.
Another stock that’s flirting with a big breakout trade today is Zagg (ZAGG), which designs, manufactures and distributes protective coverings, audio accessories and power solutions for consumer electronic and hand-held devices under. This stock is off to a monster start in 2012, with shares up over 55%.
If you take a look at the chart for Zagg, you’ll see that this stock has been uptrending nicely since it hit a low in late December at $6.40 a share. Since hitting that low, this stock has moved higher and consistently made higher lows and higher highs. That’s bullish price action and shows that traders were paying up to own the stock each time it dipped. Now shares of ZAGG are bumping up against a key near-term resistance level that if taken out, could spark a big breakout trade.
Market players should now watch ZAGG for a breakout trade if the stock can manage to take out $11.08 to $11.31 (its daily high) on heavy volume. Look for volume on a move above those levels that registers near or well above its three-month average action of 1.2 million shares. A sustained high-volume move and close above those levels should signal that ZAGG wants to march much higher. At last check, ZAGG has already registered over 3.6 million shares traded today.
Market players should look for long-biased trades in ZAGG as long as the stock is trending above $11.08 to $11.31 with strong volume flows. If we can get a close near or above those levels, then look for ZAGG to make a run at its next significant overhead resistance levels at $12 to $12.35 a share or much higher in the near future.
Keep in mind that this stock sports a gigantic short interest. The current short interest as a percentage of the float for ZAGG is a whopping 45.5%. This huge short-interest could really get this stock juiced if that breakout trade triggers soon, so keep this name on your trading radar.
A stock in the biotechnology and drug complex that’s very close to triggering a big breakout is Salix Pharmaceuticals (SLXP), a pharmaceutical player engaged in acquiring, developing and commercializing prescription drugs used in the treatment of a variety of gastrointestinal disorders, which are those affecting the digestive tract. This stock hasn’t done much in 2012 with shares up just 3.5%. That said, if this stock can manage to trigger a near-term breakout, then that performance could get amped up very quickly.
If you look at the chart for Salix Pharmaceuticals, you’ll see that this stock has been trading range bound for the past month a change between $50.28 on the upside and $44.50 a share on the downside. This stock recently found some buying support at around $46 a share, and it has now spiked back above its 50-day moving average of $47.58 on heavy volume. This move now puts SLXP within range of trigging a big breakout if it can move above that upper-end of its recent trading range.
Traders should now watch SLXP to trigger a breakout trade once the stock moves above some near-term overhead resistance at $50.08 to $50.28 with high volume. Look for volume on any move above that levels that registers near or above 779,414 shares. At last check the stock has hit a high today of $50.54 and volume is over 1.58 million shares. All we need to see now is for SLXP to close over $50.28 or higher to trigger this breakout trade.
Traders should now look for long biased trades as long as SLXP is trending above $50.28 and above its daily high of $50.54 a share with strong volume flows. This is another stock with a decent short interest, since the current short interest as a percentage of the float for SLXP is 10.3%. This large number of shorts involved in the stock could set this off for a big since SLXP over $50.54 will be trading in all-time high territory.
Salix is one of Discover Capital Management's top holdings. The firm increased its position in the stock by 19.5% in the fourth quarter to 1.9 million shares.
Another name in the biotechnology and drugs complex that’s trading within range of triggering a big breakout is Oncothyreon (ONTY), which is focused primarily on the development of therapeutic products for the treatment of cancer. This stock is off to a decent start in 2012, with shares up over 15%.
If you look at the chart for Oncothyreon, you’ll notice that this stock hit a near-term bottom in January at $6.17 a share. What I like about that bottom is that it was higher than the last two lows from last year at $5.93 in November and $5.63 in October. This shows a longer-term pattern of higher lows for ONTY, which is bullish price action. That means that traders are paying up whenever the stock goes on sale. This stock has also been putting in pattern of higher highs during that same timeframe. Now ONTY is trading within range of triggering a big near-term breakout trade.
Market players should look for long-biased trades in ONTY if it can manage to take out some near-term overhead resistance at $9.23 a share high-volume. Look for volume on that move that registers near or above its three-month average volume of 943,748 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 $11.60 a share or much higher. Some near-term support for ONTY sits at $8.50 a share, so key of that level for a buy stop.
This is a heavily shorted stock since 33.4% of the tradable float is currently sold short by the bears. This high short could easily send this stock skyrocketing if that breakout triggers in the coming days or weeks, so keep this name on your trading radar.
One more stock that’s very close to breaking out and potentially moving much higher is Endologix (ELGX), which develops, manufactures, markets and sells treatments for aortic disorders. This stock is off to a respectable start in 2012, with shares up around 14%.
If you look at the chart for Endologix, you’ll notice that this stock has been uptrending huge for the past six months, with shares consistently making higher lows and higher highs. That uptrend has taken ELGX from $8.61 to its current price of around $13 a share. That’s a huge gain already, but it could be far from over if ELGX manages to trigger a near-term breakout trade.
Market players should watch shares ELGX for a breakout trade if this stock can manage to clear some near-term overhead resistance at $13.67 with high volume. Watch for a move over that level where volume hits near or well above its three-month average action of 380,321 shares. A sustained high-volume move and close above that resistance level should set this stock up for a spike back towards $15 to $17 share or much higher very quickly.
Traders should look for long biased traders in ELGX as long as the stock is trending above $13.67 with strong volume flows. Look for near-term support at $12.45 to hold if you get long off weakness and anticipate the breakout. This is another stock with a decent short interest since 8% of its tradable float is currently sold short by the bears. That high short interest could spike the stock big if the breakout triggers soon, so make sure to put this one on your trading radar.
-- 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.