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5 Stocks Setting Up to Break Out - views
WINDERMERE, Fla. (Stockpickr) -- U.S. stocks dipped a bit lower on Friday before bouncing modestly higher, keeping the S&P 500 within range for its first weekly loss in six weeks as housing-related equities dropped after data showed a decline in single-family home sales.
Home sales dropped 1.8% in February, according to the Commerce Department. This bearish housing data has now pushed the S&P lower for potentially its fourth straight trading session, which marks its longest losing streak in four months.
Despite the slight market weakness, the Down Jones Industrial Average is still trending above its psychologically important level of 13,000. The Nasdaq is also still trending above its psychologically important 3000 level, but the S&P 500 has lost its key psychological level of 1400. If all indices were to start closing below those key psychological levels, then the bears could gain some traction and spark a much deeper selloff.
At last check, the Dow was trading up 42 points, and the S&P 500 was trading up 4.5 points. The tech-heavy Nasdaq was the weakest index with tech shares off by around 3.5 points. No matter what the market is doing, there are also sectors and stocks that are seeing buying interest. Money loves to rotate from one area to the next on Wall Street as traders’ position themselves for the next major trend. This means that there are also sectors and stocks breaking out.
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
Here‘s a look at a number of stocks that are setting up to break out and potentially trade higher from current levels.
A stock that’s trading within range of a big breakout trade is NCI (NCIT), a provider of information technology, engineering, logistics, and professional services and solutions to Federal Government agencies. This stock has been crushed in 2012, with shares off by around 41%.
If you take a look at the chart for NCI, you’ll see that this stock recently gapped down huge in January from near $12 to below $8 a share on monster volume. Following that large gap down, shares of NCI have traded sideways between $6.63 on the downside and $7.75 on the upside. Now today the stock has started to spike higher on monster volume. At last check, volume today has already hit over 890,000 shares vs. its three-month average volume of 75,716 shares. The stock has hit a daily high of $7.80 but has pulled back substantially to its current price near $6.75.
Traders should now look for long-biased trades in NCIT if this stock can manage to take out a couple of key near-term overhead resistance levels. The first levels to watch are its 50-day moving average of $7.71 and some near-term overhead resistance at $7.75 a share. The second major area of resistance is its gap down day high which sits right above $8.50 a share. Traders should now look for a sustained moving average and close above those levels that registers volume near or well above 75,716 shares.
Market players should look to get long NCIT as long as the stock is trending above $7.75 and also above $8.50 a share. If we get a high-volume move and close over those levels, then this stock has a great chance to fill some of that gap back towards $12 a share. Keep in mind that it would be helpful for NCIT to close above its 50-day and above $7.75 to set up a run at taking at that gap down day high near $8.50.
A stock in the oil well services and equipment complex that’s nearing a breakout trade is Hercules Offshore (HERO), which provides shallow-water drilling and marine services to the oil and natural gas exploration and production industry worldwide. This stock is off to a decent start in 2012 with shares up over 17%.
If you look at the chart for HERO, you’ll see that this stock has been uptrending strong for the past six months, with shares soaring from its low of $2.25 to its current price near $5.25 a share. During that uptrend, shares of HERO have consistently made higher lows and higher highs, which is bullish price action. This large run has now pushed HERO within range of triggering a near-term breakout trade.
Traders should now look for long-biased traders if HERO can manage to take out some past overhead resistance at $5.57 to $5.60 a share with high-volume. Look for a sustained high-volume move and close above those levels that register volume that’s near or well above its three-month average action of 3.9 million shares. At last check, volume has hit over 16.9 million shares and the stock has printed a daily high of $5.44 a share.
Traders should look to get long HERO as long as the stock is trending above those key breakout levels I highlighted. If we get that action soon, then HERO has a great chance to re-test its next significant overhead resistance level of $6.50 a share very quickly. Keep in mind that the current short interest as a percentage of the float for HERO is notable at 9.1%. That means any close over $5.60 could setup HERO for a short squeeze that spikes the stock significantly higher.
Hercules Offshore shows up on a list of 10 Top Stocks Under $5 for 2012 Picked by Analysts.
A chart in the biotechnology and drugs complex that’s starting to look hot is that of Arena Pharmaceuticals (ARNA), a clinical-stage biopharmaceutical company focused on discovering, developing and commercializing oral drugs that target G protein-coupled receptors, in four major therapeutic areas: cardiovascular, central nervous system, inflammatory and metabolic diseases. This stock is off to a decent start in 2012, with shares up around 15.5%.
If you look at the chart for Arena Pharmaceuticals, you’ll notice that this stock has found some big buying support during the past few months at around $1.70 to $1.75 a share. As buyers stepped in at those levels, the stock has started to uptrend and move back above its 50-day moving average of $1.81 with strong volume. During just the past three trading sessions (all up days), volume has registered 8.1 million, 9.5 million and 5.6 million shares, which is well above its three-month average action of 4.5 million shares. At last check today, volume has already hit over 7 million with the stock up 9.5% to $2.23 a share. This recent high-volume up move has now pushed ARNA within range of a big breakout trade.
Market players should now look for long-biased trades if ARNA breaks out above some near-term overhead resistance at $2.12 to $2.15 a share with strong volume. Look for volume on that move that registers near or above its three-month average volume of 4.5 million shares. If we get that action soon, then this stock has a great chance to make a run at its December high of $2.62 a share or possibly even higher.
Trades should look for long-biased trades in ARNA as long as the stock is trending above $2.12 with strong upside volume flows. Keep in mind that this stock is heavily shorted by the bears. The current short interest as a percentage of the float for ARNA is big at 16.4%. The bears have also been increasing their bets from the last reporting period by 9.4%, or by around 2.16 million shares. A strong close over $2.12 to $2.15 should setup ARNA for a big short squeeze in the near future.
Another stock that’s trading within range of a major breakout trade is Monster Worldwide (MWW), which, together with its subsidiaries, provides online employment solutions worldwide. Monster Worldwide operates a network of Websites that connect employers and jobseekers. This stock is off to a strong start in 2012, with shares up over 27%.
If you look at the chart for Monster Worldwide, you’ll notice that this stock found some serious buying support in late February at around $6.57 a share. That area was close to some previous support zones from the months prior at $6.59 and $6.34. After buyers stepped in at $6.57, shares of MWW soared on heavy volume towards its current price of $10.15 a share. This monster up move has now pushed MWW within range of triggering a major breakout trade.
Market players should now look for long-biased traders in MWW if this stock can manage to break out above some past overhead resistance at $10.25 a share with high-volume. Traders should look for a sustained high-volume move and close above that level that registers volume near or well above its three-month average action of 4.2 million shares. At last check, volume today has already surpassed 6 million shares and the stock has hit a high of $10.25.
If that high-volume breakout triggers soon for MWW, then this stock has some tremendous upside. The reason I feel the upside is big is due to the fact that there’s little overhead resistance between $10.25 and its next significant overhead resistance levels which sit at $14 to $15 a share. The upside potential is also big because MWW sports a decent short interest as a percentage of its float at 12.1%. Traders should look to get long MWW as long as it’s trending above $10.25 with strong upside volume flows.
Monster Worldwide shows up on a list of 5 Undervalued Stocks for 2012.
Another stock that’s just starting to trigger a major breakout trade is Glu Mobile (GLUU), which designs, markets and sells mobile games. This stock is off to a blazing start in 2012, with shares up over 46%.
If you take a look at the chart for Glu Mobile, you’ll notice that this stock has been uptrending strong for the last six months, with shares making mostly higher lows and higher highs, which is bullish price action. During the past month and change, GLUU has found big buying interest at around $3.67 to $3.78 a share. After buyers stepped in under $4, the stock has now spiked big today to a daily high of $4.79, and more importantly within range of triggering a major breakout.
Market players should now look for long-biased trades if GLUU can manage to take out its near-term overhead resistance at $4.68 with high volume. Look for volume off a sustained move and close above that level that registers near or well above its three-month average volume of 1.6 million shares. At last check, GLUU has hit a daily high today of $4.79, and the upside volume is off the charts at over 8.7 million shares.
Part of the move today in GLUU is due Needham's issuing a strong buy on the stock with an $8 price target. Needham analyst Sean McGowan said that the $8 price target assumes that at this time next year, the stock will sell at a P/E of about 20 times its non-GAAP EPS for 2014, which they estimate at 40 cents.
Traders should now look for to get long GLUU as long as the stock is trending above $4.32 to $4.68 with strong upside volume flows. If we see a sustained trend above those levels, then I would look for GLUU to make a huge run back towards its next significant overhead resistance prices at $5.50 to $6 a share or possibly much higher.
It’s worth mentioning that GLUU currently sports a decent short interest. The current short interest as a percentage of the float for GLUU is rather high at 12.6%. If we can see a strong close in GLUU soon above $4.68 to $4.79 a share, then this stock has a great chance to see a big short-squeeze that sends shares soaring.
To see more breakout candidates, check out the Breakout Stocks of the Week portfolio on Stockpickr.
-- 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.