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5 Stocks Setting Up to Break Out - views
WINDERMERE, Fla. (Stockpickr) -- Stocks are trending slightly lower in early trading Friday as market players continue to worry about the recent spikes higher in crude oil prices. The concern is that if oil prices continue to ramp higher, then higher gasoline prices will put a massive dent in consumer spending and derail the economic recovery.
Despite that concern, the S&P 500 is still on track to potentially close for its ninth straight week of gains, which would be the longest winning streaking for this major index since the end of January 2004. The Nasdaq is now within range of closing above the psychologically important 3,000 level, and the Dow Industrial Average is within range of the psychologically key 13,000 area.
At last check, the Dow was trading lower by 13 points, and the S&P 500 was trading off 2 points. The tech-heavy Nasdaq was bucking the overall market weakness and trading up by 3 points. The recent action in the markets has frustrated anyone who has missed the move or anyone who’s been shorting stocks. The constant talk around the markets has been that we’re due for a correction or big pullback, but that just hasn’t materialized yet.
The market rarely does what most people expect it to do. Instead, the market has continued to power higher, and many stocks have followed through with strength trigging big breakouts and hitting new 52-week highs.
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 several stocks that are setting up to break out and potentially trade higher from current levels.
An auto and truck manufacturer that’s trading within range of a major breakout is Tesla Motors (TSLA), which designs, develops, manufactures and sells electric vehicles and advanced electric vehicle powertrain components. This stock is off to a hot start in 2012, with shares up over 20%.
If you take a look at the chart for Tesla Motors, you’ll notice that this stock has been uptrending strong since a large spike lower in January. During this uptrend, shares of Tesla Motors have been making mostly higher lows and higher highs, which is bullish price action. Now the stock is trading within range of triggering a big breakout that could push the stock into all-time high territory.
Market players should keep an eye on TSLA for a breakout trade if this stock can manage to take out some near-term overhead resistance at $35 a share with high volume. Look for volume on a move or close above that that registers near or well above its three-month average volume of 1.14 million shares. If we get that action soon, then I fully expect TSLA to re-test its all-time high of $36.42 a share very quickly and then potentially take that level out.
Traders should look for long-biased trades in TSLA if that breakout does materialize soon with decent or high volume. I would use some near-term support zones at $33 to $32.50 a share to key off for potential stops if you buy TSLA off weakness. If you get long TSLA off of strength, I would use a stop a few percentage points below $35. I would add to any long positions if $35 and then $36.42 are taken out with volume.
Make note that this stock sports an extremely high short interest. The current short interest as a percentage of the float for TSLA is a gigantic 52.1%. Nothing is more frightening to a short seller then being caught short a sock that’s breaking out to new all-time high, so make sure to note the breakout levels on this stock for the near future.
Another stock that’s trading within range of a breakout is Petroleum Development (PETD), an independent natural gas and crude oil company that explores for and acquires, develops, produces and markets natural gas and crude oil resources. This stock is hasn’t done much in 2012, with shares virtually flat on the year.
If you take a look at the chart for Petroleum Development, you’ll see that this stock has been uptrending strong since the middle of January. During that uptrend, the stock has started to form a pattern of higher lows and higher highs, which is bullish price action. Now shares of Petroleum Development are within range of a potentially big breakout trade.
Traders should watch PETD for a breakout trade if the stock can manage to take out $37.37 to $37.77 a share on heavy volume. Look for volume on a move above those levels that registers near or well above its three-month average action of 429,070 shares. A sustained high-volume move and close above those levels should set this stock up to re-test its next significant overhead resistance level at $39.50 a share, or possibly much higher into the mid-$40s.
Market players can look for long biased trades in PETD as the stock is trending above its 50-day moving average of $33.62. You can simply get long and anticipate the breakout trade, or you can just wait for the breakout trigger and buy off strength. One thing worth noting that the upside volume was huge on Thursday, so look for that pattern to continue of PETD makes a run at breaking out.
This is another breakout candidate that sports a large short interest. The current short interest as a percentage of the float for PETD is very high at 15.6%. If that breakout trigger soon, then look for the bears to cover some of their bets and help to push this stock much higher.
A stock in the computer hardware complex that’s just starting to trigger a breakout trade today is Fusion-IO (FIO), a provider of data-centric computing solutions. This stock is off to a blazing hot start in 2012, with shares up over 30%.
If you look at the chart for Fusion-IO, you’ll see that this stock recently formed a double bottom at around $21.26 to $21.84 a share. After bottoming near those levels, the stock then took off and traded back above its 50-day moving average of $26.21 with monster volume. Now the stock has started to push back above some key breakout and overhead resistance levels, following a huge upside volume day from Thursday.
Traders should now watch FIO for a sustained high-volume move and close above $29.75 to $30.49 a share. Look for volume that’s near or well above its three-month average action of 2,909,590 shares. Also watch for the stock to close near its daily highs today, to signal that buyers are in control. At last check, volume today has already exceeded that amount at over 3.6 million shares. If we get a strong close for FIO, then this stock can continue to uptrend back towards its next significant overhead resistance level at $37 a share.
Traders should now look for long-biased trades in FIO from here going forward as long as this stock is trending above those key breakout levels I mentioned. I would simply use a mental stop that’s a few percentage points below $30.49 or below $29.75 a share, in case this breakout fails to hold. If it does hold, look for FIO to tag $37 a share or possibly much higher in the near future.
In the medical equipment and supplies complex, a stock trading within range of triggering a big breakout is Mako Surgical (MAKO), a medical device company that markets its advanced robotic arm solution and orthopedic implants for orthopedic procedures. This stock has been killing it so far in 2012, with shares up over 55%.
If you look at the chart for Mako Surgical, you’ll notice that this stock formed a sweet double bottom back in December at $24.40 to $25.01 a share. After forming that bottom, the stock has uptrended strong towards its current price of around $39 a share. Shares of MAKO also recently trigger a breakout trade after the stock took out some near-term overhead resistance at $37.90 a share. Now the stock is within range of triggering another big breakout trade.
Traders should now look for long biased trades in MAKO if this stock can manage to take out some near-term overhead resistance at $40.18 a share with strong volume. Look for volume on that move that registers near or above its three-month average volume of 996,436 shares. If we get that action soon, then this stock has an awesome chance of trading back towards its next significant overhead resistance level at $43 a share very quickly or potentially much higher.
If you get long off strength or weakness, I would simply use a mental stop that’s just below some near-term support at $38 a share, or much tighter just below $40. This yet another heavily shorted breakout candidate that is worth putting on your trading radar. The current short interest as a percentage of the float for MAKO is a gigantic 38.1%. The bears will not be happy if MAKO breaks out soon and takes out its all-time high of $43, so be ready if it triggers.
I also featured Mako recently in "8 Stocks Rising on Unusual Volume."
One more stock that’s already starting to trigger a big breakout trade today is Galena Biopharma (GALE), a biotechnology company focused on discovering, developing and commercializing therapies addressing unmet medical needs using RNAi-targeted and immunotherapy technologies. This yet another hot stock in 2012, with shares up over a whopping 196%.
If you look at the chart for Galena Biopharma, you’ll notice that this stock hit a recent low at 36 cents per share back in December. Since hitting that low, the stock has soared to its current price of around $1.40 a share. During that monster uptrend, shares of Galena Biopharma have consistently made higher lows and higher highs, which is bullish price action. The stock has also seen strong upside volume trends, which is bullish technical action. Now GALE is starting to trigger a big breakout trade today on strong volume.
Market players should continue to look for long-biased trades in GALE as long as the stock is trending near or above its key breakout levels of $1.39 to $1.48 a share. At last check, this stock has hit a daily high of $1.48 and volume is already over 2.8 million shares, which is well above its three-month average action of 818,074 shares. If this stock can manage to close near its daily highs and above those breakout levels, then it has a great chance to re-test its next major overhead resistance levels at $1.65 to $2.14 a share or possibly much higher very quickly.
This is another heavily shorted stock, since the current short interest as a percentage of the float for GALE stands at 11%. The bears have also been increasing their short positions from the last reporting period by 52.6%, or by about 1.52 million shares. Look for a monster short-squeeze to kick off if GALE can hold the breakout.
I also featured Galena recently in "5 Stocks Under $5 Making Big Moves."
-- 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.