- 5 Stocks Under $10 Set to Soar
- 5 Big Trades for Year-End Gains
- 3 Stocks Rising on Unusual Volume
- 3 Stocks Spiking on Big Volume
- 4 Stocks Triggering Breakouts on Big Volume
5 Stocks Setting Up to Break Out - views
WINDERMERE, Fla. (Stockpickr) -- U.S. stocks are advancing modestly on Friday, as traders continued to buy stocks into one of the strongest first quarters of trading in recent history. The Dow is up close to 8%, the S&P 500 is up just about 12%, and the Nasdaq has gained an eye-catching 19% since the start of 2012.
At last check, the Dow was trading up 57 points on Friday, and the S&P 500 was advancing by 5.4 points. The tech-heavy Nasdaq was up around 3 points. All major indices are trading within range of fresh multi-year highs. That said, the market has seen some selling pressure the last few days. For example, the S&P 500 has fallen for three straight days heading into today.
Traders should look for the market to show its hand as we move into next week in regards to what the next major trend is going to be. We often see window dressing at the end of a quarter, so as we head into the second quarter look for the prevailing overall trend to develop. For now that trend is up, but caution is warranted since we have seen such a powerful move in equities these last few months.
Whether the market continues its trend up or enters a new downtrend, there’s always going to be stocks that are setting up to trigger major breakout trades. Trend traders who look for breakouts know that market is always serving up something that’s ready to move.
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.
A biopharmaceutical player that’s trading within range of triggering a major breakout is Vivus (VVUS), which is engaged in development and commercialization of therapeutic drugs for large underserved markets, including obesity and related morbidities, such as sleep apnea and diabetes and men's sexual health. This is one of the hottest stocks in 2012, with shares up over 120%.
If you take a look at the chart for Vivus, you’ll notice that this stock has been trending within a range of around $18 to $25.14 a share for the past month. This range-bound trend is helpful because it will make it easier to identify the next major move for VVUS. That trend looks to be setting up for a move to the upside since the stock is currently within a shouting distance of making new highs.
Traders should now look for long-biased trades if VVUS can manage to break out above Thursday’s high of $23.75 and some near-term overhead resistance at $25.15 a share with high-volume. Look for volume off a sustained move and close above those levels that registers near or well above its three-month average action of 6.6 million shares.
If we get that action soon, then look for VVUS to make a big spike to the upside since the shorts will probably cover quickly with the stock making new 52-week highs. I would simply avoid this stock if that breakout never triggers with volume, or if VVUS breaks back below $19.55 to $18 with high volume. If those levels are ever lost on the downside then this stock could fill some of that huge gap up from back in February.
Another stock that’s just starting to enter breakout territory is TripAdvisor (TRIP), an online travel research company, enabling users to plan and have a trip. This stock is off to a strong start in 2012, with shares up over 40%.
If you take a look at the chart for TripAdvisor, you’ll notice that this stock has been in a monster uptrend for the past few months, with shares rising from its January low of $24.57 to its current price of around $36 a share. During that up-move, TRIP has been making mostly higher lows and higher highs, which is bullish price action. Now the stock has started to trigger a breakout trade with shares moving above some near-term overhead resistance, and hitting new 52-week highs.
Market players should now look for long-biased traders in TRIP as long as the stock is trending above some near-term overhead resistance at $36.05 a share with strong upside volume flows. Look for volume on a sustained move and close above $36.05 that hits near or well above its three-month average action of 2.3 million shares. At last check, TRIP has hit a daily high of $36.85, and volume is above 2 million shares traded.
If we can get a strong close on TRIP today above $36.05 and near its daily highs, then this stock should continue its uptrend in the near-term and potentially hit $40 a share or much higher. I would simply avoid TRIP from the long side if it fails to hold above that breakout level of $36.05, or if it moves back below today’s low of $35.27 with high volume.
As of the most recently reported quarter, TripAdvisor is one of Jana Partners' holdings.
One stock in the biotechnology and drugs complex that’s starting to flirt with a major breakout trade is Horizon Pharma (HZNP), which develops and commercializes medicines to target unmet therapeutic needs in arthritis, pain and inflammatory diseases. This stock hasn’t done much in 2012, with shares virtually flat on the year.
If you look at the chart for Horizon Pharma, you’ll notice that this stock was stock in a nasty downtrend from its November high of $8.98 to a recent low of $3.05 a share. During that downtrend, shares of HZNP consistently made lower highs and lower lows, which is bearish price action. That said, the stock has now started to trend sideways for the past month, and it’s been making higher lows and higher highs, which could be indicating the start of a bullish trend change.
Traders should continue to look for long biased trades in HZNP if this stock can manage to stay above its 50-day moving average of $3.70, and if it can trigger a near-term breakout above $4.10 a share with volume. Look for volume on that move that’s near or well above its three-month average action of 58,115 shares. At last check, volume today is big with over 475,000 shares traded and HZNP has hit a daily high of $4.21.
As long as HZNP is trending above $4.10 with strong upside volume flows, then this stock should setup to trade back towards its next significant overhead resistance levels at $4.50 to $5.40 a share. Since the upside volume was strong yesterday and is today, then the probably if this stock spike big is high on a close over $4.10 and near its daily highs.
Another name in the biotechnology and drugs complex that’s within range of triggering a breakout trade is Dendreon (DNDN), which is focused on the discovery, development and commercialization of therapeutics that may improve cancer treatment options for patients. This stock has been ripping so far in 2012, with shares up over 35%.
If you look at the chart for Dendreon, you’ll see that this stock plunged big from its February high of $17.04 a share to a recent low of $9.05 with heavy volume. Following that huge drop, shares of DNDN have now started to uptrend slightly and make higher lows. The stock is now trading within range of triggering a near-term breakout trade.
Traders should now look for long biased trades in DNDN if this stock can manage to take out some near-term overhead resistance at $10.74 with volume. Look for volume on a move above that level that’s near or well above its three-month average action of 11 million shares. At last check, volume today is over 3 million and the stock has hit a daily high of $10.74 a share.
If that breakout triggers soon, then look for DNDN to re-test its 50-day moving average of $12.43 a share, or possibly hit its 200-day moving average of $15.44 a share. Look for a sustained high-volume move and close above $10.74 to signal that DNDN has a chance to spike big. I would simply avoid any long trades on DNDN if that breakout never hits or if shares drop below some near-term support at $10 to $9.72 a share with high volume.
Bonanza Creek Energy
A stock in the oil and gas complex that’s within range of a major breakout trade is Bonanza Creek Energy (BCEI), an oil and natural gas company engaged in the acquisition, exploration, development and production of onshore oil and associated liquids-rich natural gas in the U.S. This stock is off to a monster start in 2012, with shares up over 70%.
If you look at the chart for Bonanza Creek Energy, you’ll notice that this stock has been uptrending strong for the past few months, with shares moving from $12.39 to its current price of around $21.50 a share. During that uptrend, shares of BCEI have been consistently making higher lows and higher highs, which is bullish price action. That move has now pushed BCEI within range of triggering a near-term breakout trade.
Market players should now look for long biased trades in BCEI if this stock can manage to take out some overhead resistance at $22.25 with high-volume. Look for a sustained high-volume move and close above that level that’s near or well above its three-month average action of 276,252 shares. If we get that action soon, then this stock has a great chance of tagging $25 a share or higher. Keep in mind, that a move over $22.25 will mean BCEI is trading at a new all-time high, which is technically bullish price action.
Traders should consider getting long this stock as long as it’s trending above $22.25 with strong upside volume flows. I would consider it even more bullish if BCEI can start to close over that key breakout level with high-volume. Some near-term support can be found at around $20.33 in case you’re looking for an area to watch if the stock pulls back before breaking out. I would avoid long trades in BCEI if the breakout never hits or if it moves back below $20.33 with volume.
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.