Stock Quotes in this Article: AMAG, GERN, IRDM, LCAV, ZLC

 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 biotechnology and drugs stock Isis Pharmaceuticals (ISIS), which I featured in Dec. 14’s “5 Breakout Stocks to See” at $9.83 a share. I mentioned in that piece that shares of ISIS were uptrending strong and moving within range of both its 50-day and 200-day moving averages. I told readers to watch for a major breakout to trigger if ISIS took out both of those key moving averages with high volume.

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Guess what happened? Shares of ISIS went on to break back above both of those moving averages with bullish upside volume flows. The stock has now skyrocketed to its intraday high today of $14.45 a share, which is a huge gain from where the stock was trading at when I wrote the article. Shares of ISIS have now reached overbought levels, since its current relative strength index reading is 84.46.

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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Iridium Communications

One stock that’s trending very close to triggering a near-term breakout trade is Iridium Communications (IRDM), which provides satellite voice and data communications solutions with coverage of the entire Earth, including oceans, airways and Polar Regions. This stock has been thrashed by the sellers during the last six months, with shares down by 23%.

If you take a look at the chart for Iridium Communications, you’ll notice that this stock has been trending sideways for the last few weeks, with shares moving between $6.71 on the downside and $7.25 on the upside. Shares of IRDM are starting to bounce today off that $6.71 low and quickly move within range of triggering a near-term breakout trade.

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Traders should now look for long-biased trades in IRDM if it manages to break out above some near-term overhead resistance levels at $7.25 to its 200-day at $7.70 a share and once it takes out more resistance at $7.83 to $8.09 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 555,585 shares. If that breakout hits soon, then IRDM will set up to re-test or possibly take out its next major overhead resistance levels at $9.24 to $9.73 a share.

Traders can look to buy IRDM off any weakness to anticipate that breakout and simply use a stop that sits right below its 50-day moving average of $6.24 a share. One could also buy IRDM off strength once it takes out those breakout levels with volume and then simply use a stop that sits right around some key near-term support at $6.71 a share.

One other thing to note is that IRDM is a favorite target of the bears since its current short interest as a percentage of its float stands at 11.2%. We could easily see this stock short-squeeze if those breakout levels are taken out soon with volume.

Zale

 

Another stock that’s pushing within range of triggering a major breakout trade is Zale (ZLC), a specialty retailer of fine jewelry in North America. This stock has been hit hard by the bears during the last three months, with shares off by 34%.

If you take a look at the chart for Zale, you’ll notice that this stock has been trending range bound for the last two months, with shares moving between $3.85 on the downside and $4.97 on the upside. Shares of ZLC are now just starting to bounce off its 200-day moving average of $4.23 a share and its quickly moving within range of breaking out back above its 50-day moving average of $5.02 a share and back above the upper-end of its recent sideways trading pattern.

Market players should now look for long-biased trades in ZLC if it manages to break out above some near-term overhead resistance levels at $4.86 to $4.97 a share and then once it clears its 50-day at $5.02 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 731,154 shares. If that breakout triggers soon, then ZLC will set up to re-test or possibly take out its next major overhead resistance levels at $6 to $7.50 a share. Any move above $6 would then give ZLC a chance to re-fill its previous gap down zone from last November that started at $7.50 a share.

Traders can look to buy ZLC off any weakness to anticipate that breakout and simply use a stop that sits right around some key near-term support levels at $4.09 to $3.85 a share. One could also buy off strength once ZLC clears those breakout levels with volume and then simply use a stop that sits just below its 200-day moving average of $4.23 a share.

LCA-Vision

Another stock that’s trending very close to breaking out above some key resistance levels is LCA-Vision (LCAV), a provider of fixed-site laser vision correction services at its LasikPlus vision centers. This stock has moved down a bit during the last six months, with shares off by 12%.

If you look at the chart for LCA-Vision, you’ll notice that this stock is bouncing strongly today right off some near-term support at $3 a share with above-average volume. Volume so far this morning has already registered 222,275 shares, which is well above its three-month average volume of 67,534 shares. This move is also starting to push shares of LCAV back above its 50-day moving average at $3.19 a share and its moving it within range of triggering a near-term breakout trade.

Market players should now look for long-biased trades in LCAV if it manages to break out above its 50-day of $3.19 a share and then above some near-term overhead resistance at $3.41 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 67,534 shares. If that breakout triggers soon, then LCAV will set up to re-test or possibly take out its next major overhead resistance levels at $4.10 to its 200-day moving average at $4.37 a share. Any move above $4.37 to $4.60 would then out $5.50 to $6.19 into focus for shares of LCAV.

Traders can look to buy LCAV off any weakness to anticipate that breakout and simply use a stop that sits close to some key near-term support at $3 share. One can also buy off strength once LCAV clears those breakout levels with volume and then use a stop that sits just below its 50-day moving average of $3.19 a share.

Geron

Another stock that’s trending very close to triggering a major breakout trade is Geron (GERN), a biopharmaceutical company developing first-in-class therapies for cancer. This stock has been in play with the bulls for the last three months, with shares up 13%.

If you look at the chart for Geron, you’ll notice that this stock has been uptrending strongly for the last two months, with shares soaring from its low of 91 cents per share to its recent high of $1.78 a share. During that move, shares of GERN have been mostly making higher lows and higher highs, which is bullish technical price action. That move has now pushed GERN within range of triggering a major breakout trade.

Traders should now look for long-biased trades in GERN if it manages to break out above some near-term overhead resistance levels at $1.73 to $1.83 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 1.2 million shares. If that breakout triggers soon, then GERN will set up to re-fill some of its massive gap down zone from last September that started at $2.99 a share.

Traders can look to buy GERN off any weakness to anticipate that breakout and then simply use a stop that sits right around its 50-day moving average of $1.44 a share. One can also buy GERN off strength once it takes out those breakout levels with volume and then simply use a stop that sits just below its 200-day moving average of $1.58 a share.

Amag Pharmaceuticals

My final breakout trade idea today is Amag Pharmaceuticals (AMAG), which utilizes its proprietary technology for the development and commercialization of a therapeutic iron compound to treat anemia and novel imaging agents to aid in the diagnosis of cancer and cardiovascular disease. This stock has been hit modestly by the sellers during the last three months, with shares off by 8.6%.

If you look at the chart for AMAG Pharmaceuticals, you’ll notice that this stock has been uptrending notably for the last three months, with shares moving higher from its low of $13.85 to its recent high of $16.46 a share. During that uptrend, shares of AMAG have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of AMAG within range of triggering a near-term breakout trade.

Traders should now look for long-biased trades in AMAG if it manages to break out above some near-term overhead resistance at $16.46 a share with high volume. Look for a sustained move or close above $16.46 a share with volume that hits near or above its three-month average action of 84,356 shares. If that breakout hits soon, then AMAG will set up to re-test or possibly take out its next major overhead resistance levels at $18.50 to $19.62 a share. Any high-volume move above $19.62 a share will then put $21.22 into range for shares of AMAG.

Traders can look to buy AMAG off any weakness to anticipate that breakout and then simply use a stop that sits just below some key near-term support at $15 a share. One could also buy AMAG off strength once it takes out $16.46 a share with volume and then simply use a stop that sits just below the 200-day moving average of $15.43 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 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.