Stock Quotes in this Article: BXC, KEG, XRM, KYTH, GSE

 DELAFIELD, Wis. (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.

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One example of a successful breakout trade I flagged recently was games and toy maker Jakks Pacific (JAKK), which I featured in Sept. 19's "5 Stocks Under $10 Set to Soar" at around $4.95 a share. I mentioned in that piece that shares of JAKK had been downtrending badly for the last two months, with the stock plunging from its high of $11.75 to its low of $4.82 a share. Following that downtrend, shares of JAKK had started to move sideways and trend within range of a triggering a major breakout trade above $5.08 to $5.27 a share. This sideways pattern was signaling that the downside volatility for JAKK was potentially over.

Guess what happened? Shares of JAKK triggered that breakout earlier this week with massive upside volume, after the company released its earnings report. This stock tagged an intraday high of $7.24 a share on Thursday, which represents a gain of close to 50% for anyone who bought this stock under $5 a share prior to this monster move.

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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.

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.

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With that in mind, here's a look at five stocks that are setting up to break out and trade higher from current levels.

Kythera Biopharmaceuticals


One stock that's quickly moving within range of triggering a major breakout trade is Kythera Biopharmaceuticals (KYTH), which is focused on the discovery, development and commercialization of novel prescription products for the aesthetic medicine market. This stock has been on a bullish run in 2013, with shares up by 48%.

If you take a look at the chart for Kythera Biopharmaceuticals, you'll notice that this stock has been trending sideways and consolidating for the last month, with shares moving between $40.55 on the downside and $47.85 on the upside. Shares of KYTH are now starting to spike higher off some near-term support at $42.54 a share. That move is quickly pushing KYTH within range of triggering a major breakout trade above the upper-end of its recent range.

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Traders should now look for long-biased trades in KYTH if it manages to break out above some near-term overhead resistance at $47.50 to its all-time high of $47.85 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 199,029 shares. If that breakout hits soon, then KYTH will set up to enter new all-time high territory, which is bullish technical price action. Some possible upside targets off that breakout are $55 to $57, or even $60 a share.

Traders can look to buy KYTH off any weakness to anticipate that breakout and simply use a stop that sits right below some key near-term support at $42.54 a share, or at $40.55 a share. One can also buy KYTH off strength once it takes out those breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.

GSE Holdings

Another environmental services player that looks ready to trigger a near-term breakout trade is GSE Holdings (GSE), which provides geosynthetic containment solutions for environmental protection and confinement applications. This stock has been hammered by the bears so far in 2013, with shares down big by 55%.

If you take a look at the chart for GSE Holdings, you'll notice that this stock recently ripped sharply higher back above its 50-day moving average of $2.32 a share with heavy upside volume. Following that move, shares of GSE have started to trend sideways between $2.60 on the downside and $2.95 on the upside. Shares of GSE are now starting to move within range of triggering a near-term breakout trade above the upper-end of its recent range.

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Traders should now look for long-biased trades in GSE if it manages to break out above some near-term overhead resistance levels at $2.79 to $2.95 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 221,545 shares. If that breakout hits soon, then GSE will set up to re-test or possibly take out its next major overhead resistance levels at $3.50 to $4 a share.

Traders can look to buy GSE off any weakness to anticipate that breakout and simply use a stop that sits right below support at $2.60 or below its 50-day moving average at $2.32 a share. One could also buy GSE off strength once it takes out those breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.

Xerium Technologies

One cyclical consumer goods player that's starting to trend within range of triggering a near-term breakout trade is Xerium Technologies (XRM), a manufacturer and supplier of two types of consumable products, clothing and roll covers, used mainly in the production of paper. This stock has been on fire so far in 2013, with shares up sharply by 313%.

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If you take a look at the chart for Xerium Technologies, you'll notice that this stock has been uptrending strong for the last two months and change, with shares moving higher from its low of $9.94 to its recent high of $12.97 a share. During that uptrend, shares of XRM have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of XRM within range of triggering a near-term breakout trade.

Traders should now look for long-biased trades in XRM if it manages to break out above some near-term overhead resistance at $12.97 a share with high volume. Look for a sustained move or close above that level with volume that hits near or above its three-month average action of 100,685 shares. If that breakout triggers soon, then XRM will set up to re-test or possibly take out its 52-week high at $14.04 a share. Any high-volume move above that level will then give XRM a chance to tag its next major overhead resistance levels at $18 to $20 a share.

Traders can look to buy XRM off any weakness to anticipate that breakout and simply use a stop that sits right below some near-term support at $12.28, or near its 50-day at $11.35 a share. One can also buy XRM off strength once it takes out $12.97 a share with volume and then simply use a stop that sits a comfortable percentage from your entry point.

Key Energy Services

Another energy player that's starting to move within range of triggering a big breakout trade is Key Energy Services (KEG), which provides well services to oil companies, foreign national oil companies and independent oil and natural gas production companies. This stock is off to a modest start in 2013, with shares up by just 7.9%.

If you look at the chart for Key Energy Services, you'll notice that this stock has recently spiked higher back above both its 200-day moving average at $7.16 a share and its 50-day moving average of $7.28 a share. That move is quickly pushing shares of KEG within range of triggering a big breakout trade.

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Traders should now look for long-biased trades in KEG if it manages to break out above some near-term overhead resistance levels at $7.75 to $7.96 a share and then once it take out more resistance at $8.04 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 2.03 million shares. If that breakout triggers soon, then KEG will set up to re-test or possibly take out its 52-week high at $9.55 a share. Any high-volume move above that level will then give KEG a chance to tag its next major overhead resistance levels at $10 to $11 a share.

Traders can look to buy KEG off any weakness to anticipate that breakout and simply use a stop that sits right below some key near-term support levels at $7.14 a share or $6.83 a share. One can also buy KEG off strength once it takes out that breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.

Bluelinx

My final breakout trading prospect is Bluelinx (BXC), a distributor of building products including lumber, structural panels, hardwood plywood, roofing, insulation, metal products, vinyl siding and particleboard. This stock has been hit hard by the bears so far in 2013, with shares off by 31%.

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If you look at the chart for Bluelinx, you'll notice that this stock has been trending sideways and consolidating for the last two months, with shares moving between $1.78 on the downside and $2.06 on the upside. Shares of BXC have now started to spike higher right off its 50-day moving average of $1.84 a share. That move is quickly pushing shares of BXC within range of triggering a breakout trade above the upper-end of its recent sideways trading chart pattern.

Traders should now look for long-biased trades in BXC if it manages to break out above some near-term overhead resistance levels at $1.93 to $2 a share, and then once it takes out more resistance at $2.06 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 103,903 shares. If that breakout triggers soon, then BXC will set up to re-test or possibly take out its next major overhead resistance levels at $2.29 to its 200-day moving average at $2.39 a share. Any high-volume move above those levels will then give BXC a chance to tag $2.60 to $3 a share.

Traders can look to buy BXC off any weakness to anticipate that breakout and simply use a stop that sits right below some key near-term support levels at $1.80 to $1.78 a share. One could also buy BXC off strength once it clears those breakout levels with volume and then simply use a stop that sits a conformable percentage from your entry point.

To see more breakout candidates, check out the Breakout Stocks of the Week portfolio on Stockpickr.

-- Written by Roberto Pedone in Delafield, Wis.

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At the time of publication, author had no positions in stocks mentioned.

Roberto Pedone, based out of Delafield, Wis., 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.