Stock Quotes in this Article: CHTP, COCO, KEG, MCP, MGM

 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, it’s free to find new buyers and momentum players that can ultimately push it significantly higher.

One example of a recent successful breakout trade is biotechnology and drugs stock Cyclacel Pharmaceuticals (CYCC), which I highlighted in Sept. 11's “4 Biotech Stocks Under $10 Making Big Moves.” The stock was starting to trend above its 200-day moving average at $3.97, and it was quickly pushing within range of triggering a major breakout trade above some near-term overhead resistance levels at $4.06 to $4.20 a share.

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Guess what happened? Within about a week, shares of CYCC went on to trigger that breakout trade with heavy upside volume. The stock went on to skyrocket and trade from a low of $3.88 to its recent high hit on this Monday at $7.93 a share. That’s a monster gain of close to 100% in a very short timeframe. This is a perfect example of why you have to be creating a watch list of breakout stock candidates every day. When these stocks trigger, they have the propensity for making monster moves higher.

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.

 

Corinthian Colleges

One stock that’s moving within range of triggering a near-term breakout trade is post-secondary education company Corinthian Colleges (COCO), which offers various diploma programs, as well as associates, bachelors, and master’ degrees. This stock has been trending moderately bullish so far in 2012, with shares up 20%.

If you take a look at the chart for Corinthian Colleges, you’ll notice that this stock hit a low in August of $1.74 and has been uptrending ever since to its recent high of $2.94 a share. During that uptrend, shares of COCO have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed COCO within range of triggering a near-term breakout trade.

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Traders should now look for long-biased trades in COCO once it manages to break out above some near-term overhead resistance levels at $2.73 to $2.94, and then once it takes out its 200-day moving average of $3.12 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 volume of 804,482 shares. If that breakout triggers soon, then COCO will setup to re-test and possibly take out its next major overhead resistance levels at $3.44 to $4 a share.

Traders can look to buy COCO off any weakness to anticipate that breakout, and simply use a stop that sits right below its 50-day moving average of $2.41 a share. I would add to any long positions once COC takes out $2.73 to $3.12 with volume, and add again over $3.44 a share.

Chelsea Therapeutics

Another stock that’s setting up to hit a near-term breakout trade is Chelsea Therapeutics (CHTP), a specialty pharmaceutical company focused on the acquisition, development and commercialization of innovative pharmaceutical products. This stock has been hammered by the bears so far in 2012, with shares down a whopping 73%.

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If you take a look at the chart for Chelsea Therapeutics, you’ll see that for the last two months, this stock has been trending sideways between $1.10 on the downside and $1.48 on the upside. As CHTP has trended sideways, the stock has found buying interest each time it’s pulled back near its 50-day moving average. Shares of CHTP are now starting to push higher and move within range of triggering a near-term breakout trade.

Market players should now look for long-biased trades in CHTP once it manages to take out some near-term overhead resistance levels at $1.39 to $1.48, and then $1.54 a share with high volume. Look for a sustained move or close above those levels with volume that hits close to or above its three-month average action of 456,323 shares. If that breakout triggers soon, then CHTP will setup to re-test or possibly take out its next significant overhead resistance levels at $1.83 to $1.99 a share. Any high-volume move above those levels will then put $2.20 to $2.32 a share into focus.

One can look to buy CHTP off any weakness to anticipate that breakout, and simply use a stop that sits right below its 50-day moving average of $1.17 a share. One could also buy off strength once CHTP clears those near-term breakout levels with volume, and then use a stop just below $1.30 a share. I would add to either position aggressively if CHTP takes out $2.20 to $2.32 a share with volume.

Molycorp

A stock in the metal mining complex that’s moving within range of triggering a near-term breakout trade is Molycorp (MCP), a rare earth oxide producer in the Western Hemisphere that owns fully developed rare earth project outside of China. This stock has been trending down so far in 2012, with shares off by over 50%.

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If you look at the chart for Molycorp, you’ll notice that this stock has been trending sideways for the last month, with shares moving between $10.25 on the downside and $11.89 on the upside. This stock has just started to push back above its 50-day moving average of $11.43 a share, and it’s now quickly moving within distance of breaking out above the high-end of its recent trading range.

Market players should now look for long-biased trades in MCP if it can manage to break out above some near-term overhead resistance at $11.89 a share with high volume. Look for a sustained move or close above $11.89 a share with volume that registers near or above its three-month average action of 7,795,160 shares. If that breakout triggers soon, then MCP will setup to re-test or possibly take out its next major overhead resistance levels at $14.44 to $16 a share.

One can look to buy MCP off any weakness to anticipate that breakout, and then simply use a stop that sits just below its 50-day moving average of $11.43 a share. You could also use a stop down around $10.36, but I would rather see MCP trending above its 50-day to play this potential breakout.

Key Energy Services

Another stock that’s trending very close to triggering a major breakout trade is Key Energy Services (KEG), which provides a range of well services to oil companies, including rig-based well maintenance, workover, well completion and recompletion services, fluid management services, pressure pumping services, fishing and rental services. This stock has been a favorite target of the sellers so far in 2012, with shares down by over 50%.

If you look at the chart for Key Energy Services, you’ll see that this stock recently sold off hard from a high of $9.57 to its recent low of $6.64 a share. During that selloff, shares of KEG were making mostly lower highs and lower lows, which is bearish technical price action. That said, shares of KEG have now stabilized and started to trend higher with the stock moving within range of triggering a near-term breakout trade.

Traders should now look for long-biased trades in KEG if it can manage to break out above its gap down day high from late September at around $7.50 a share, and then above its 50-day at $7.92 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 volume of 3.4 million shares. If that breakout triggers soon, then KEG will setup to re-test or possibly take out its next major overhead resistance levels at $9.57 to $10.80 a share. If KEG can clear those levels with volume, then it will setup to challenge its 200-day moving average of $11.28 a share.

Traders should look to buy KEG once it takes out $7.50 to $7.92 a share with volume, and then simply use a stop that sits just below $7 a share.

MGM Resorts International

One more stock that’s trading very close to triggering a major breakout trade is MGM Resorts International (MGM), a holding company that, through its wholly-owned subsidiaries, owns and/or operates casino resorts. This stock has been trending modestly to the upside in 2012, with shares up just over 7%.

If you look at the chart for MGM Resorts International, you’ll see that this sock has been uptrending pretty strong since August, with shares soaring from a low of $8.83 a share to a recent high of $11.78 a share. During that uptrend, shares of MGM have been mostly making higher lows and higher highs, which is bullish technical price action. That move is quickly pushing MGM within range of triggering a major breakout trade.

Traders should now look for long-biased trades in MGM once it manages to clear some near-term overhead resistance levels at $11.50 to $11.78 a share, and then above $11.81 to $11.95 a share with high volume. Look for a sustained move or close above those levels with volume that tracks near or above its three-month average volume of 9.8 million shares. If that breakout triggers soon, then MGM will setup to re-test or possibly take out its next major overhead resistance levels at $14 to $14.94 a share.

One could look to buy MGM off any weakness to anticipate that breakout, and simply use a stop that sits just below its 50-day moving average of $10.52 a share. A better play might be to just buy off strength once MGM clears those breakout levels with strong upside volume, and then use a stop just below $11.50 to $11.25 a share.

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.