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5 Stocks Setting Up to Break Out - views
WINDERMERE, Fla. (Stockpickr) -- U.S. stocks soared on Thursday after positive data came out of China and the debt-burdened countries in Europe.
China’s central bank surprised the market after it reported a jump in loans for March. Market players viewed that news as a positive since many were worried that China’s economy was starting to lose some of its feverish growth.
Debt worries in Europe took a day off after Italy had no issues in selling $6.4 billion in government debt. That successful sale helped rates in Italy fall, and European stocks to reverse course and trend higher after opening up in the red.
The Dow Jones Industrial Average finished up 181 points and the S&P 500 added 18 points. The tech-heavy Nasdaq exploded higher by 39 points. All three of these U.S. indices are now trading above or very close to their 50-day moving averages. If they all can continue to trend above their 50-days, we could easily see the market continue to extend its gains from Thursday. That said, any selloff for all three back below their 50-days will put any future rallies into serious jeopardy.
If we do see all three indices trending above their 50-days, then we are going to see a ton of stocks trigger major breakout trades. Trend traders who look for breakouts know that market is always serving up stocks that are ready to move and explode higher.
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.
One stock that’s quickly approaching a major breakout is on-demand software and professional service provider Responsys (MKTG). This stock is off to a monster start in 2012, with shares trading up over 40%.
If you take a look at the chart for Responsys, you’ll notice that this stock trended up strong from last November’s low of $7.30 to a recent high of $12.78 a share. After hitting that high, the stock plunged to $9.69 but then recovered from that level and closed at $12.71 a share on Thursday. That recent rebounded came on heavy upside volume, and it’s now pushing MKTG within range of triggering a major near-term breakout trade. On Thursday, the stock closed up 5.8% on volume that registered over 850,000 shares, which is well above its average volume.
Market should now look for long-biased trades if MKTG can manage to break out above some near-term overhead resistance at $12.78 a share with high volume. Look for volume on a sustained move or close above $12.78 that registers near or well above its three-month average action of 443,744 shares. If we get that action soon, look for MKTG to rip higher towards its next significant overhead resistance levels at $15.66 to possibly its 52-week high of $18.19 a share.
What I like about the potential for MKTG here is that this recent up-move is coming right after the stock found high-volume buying right around its 50-day and 200-day moving averages. As long as those levels hold, and MKTG can sustain a trend above $12.78 with strong upside volume flows, then this stock should move notably higher in the near future.
I also featured Responsys in "5 Stocks Insiders Love Right Now."
Another stock that exploded higher Thursday and now is within range of triggering a major breakout trade is Mips Technologies (MIPS), a provider of industry-standard processor architectures and cores for digital home, networking and mobile applications. This stock is off to a strong start in 2012, with shares up over 47%.
Shares of MIPS Technology soared on Thursday by 26.3% after Bloomberg reported that the company has hired Goldman Sachs to pursue a potential sale.
If you take a look at the chart for MIPS Technologies, you’ll notice that the huge up-move on Thursday pushed this stock back above both its 50-day and 200-day moving averages on monster volume. Volume registered over 7.8 million shares, which is well above its three-month average action of 820,274 shares. That move has now pushed MIPS within range of triggering a major near-term breakout trade.
Market players should now look for long-biased traders in MIPS if it can manage to sustain a high-volume move or close above some near-term overhead resistance at $7 a share. Look for volume on that move that registers close to or above 820,274 shares. If we get that action soon, look for MIPS to make a run at its next significant overhead resistance levels at $8.27 to $11 a share. Keep in mind that $11 is where this stock gapped down big last year with heavy volume. The daily high of that gap down day was around $9 a share.
Since MIPS closed strong on Thursday right near its daily highs, I think this stock has a great chance of seeing its momentum continue and potentially trigger that near-term breakout. That said, I would only look for long-biased trades if it can sustain a trend above $7 with strong upside volume flows. A failure to get above $7 will put this stock into jeopardy of giving back a good portion of Thursday gains.
One stock in the computer services complex that looks ready to trigger a big breakout is professional networking website LinkedIn (LNKD). This stock is off to a blazing start in 2012, with shares up a whopping 68%.
If you look at the chart for Linkedin, you’ll see that this stock has been uptrending strong since the start of 2012, with shares running up from a low of $61.28 to its current price of $105.90 a share. During that monster up move, shares of LNKD have consistently made higher lows and higher highs, which is bullish technical price action. This stock has also never looked back once after it crossed its 50-day moving average in January, with shares consistently trending above that average during the entire uptrend.
Market players should now look for long-biased trades in LNKD if it can manage to trigger a breakout trade on a move or close above some near-term overhead resistance at $106.97 a share with high-volume. Look for volume on that move that hits near or well above its three-month average action of about 3 million shares. On Thursday, LNKD ripped higher by 8.4% to close just one dollar off its daily highs on volume of 3.84 million shares traded.
If LNKD can sustain a trend above $106.97 with strong upside volume flows, then this stock has an awesome chance of trading up towards its next significant overhead resistance level at $115.05 a share, or possibly up to its 52-week high of $122.70 a share. Keep in mind that the probability for a much larger move to happen will increase if LNKD clears $106.97 with solid volume.
LinkedIn, one of Tiger Global Management's holdings, was also featured recently in "7 Stocks With Relative Strength to Beat the Market."
Another name in the computer services complex that’s close to triggering a breakout trade is NetQin Mobile (NQ), a software-as-a-service provider of consumer-centric mobile Internet services focusing on security and productivity. This is one of the top-performing stocks so far in 2012, with shares up 109%.
If you look at the chart for NetQin Mobile, you’ll notice that this stock has been uptrending ridiculously strong for the past few months change, from a low of $4.56 to a recent high of $12.19 a share. During that monster move higher, this stock has consistently made higher lows and higher highs, which is bullish technical price action. That move has now pushed NQ within range of triggering a major near-term breakout trade.
Market players should consider long-biased traders in NQ if this stock can manage to take out some near-term overhead resistance at $11.39 to $12.19 a share with volume. Look for volume on a move or close above those levels that registers near or well above its three-month average volume of 430,160 shares. On Thursday, this stock closed up 12.2% to $11.06 on volume of 620,811 shares. The stock also hit a high yesterday of $11.14 a share, so it closed very close to its daily high which is bullish technical price action. Whenever a stock closes near its daily highs, the probably of continued momentum increases especially if the volume was strong.
If that breakout does indeed trigger soon for NQ, then it will be a major technical move since the stock will be trading at brand new all-time highs. This company came public back in March of 2011, so basically a move over $12.19 will mean that anyone who has ever bought this stock is making money. That’s great company to be in when you own a stock, so look for significant upside if we get that high-volume breakout soon.
One more stock that’s close to triggering a big breakout is Tesco (TESO), which is engaged in the designing, manufacturing and service delivery of technology-based solutions for the upstream energy industry. This stock is off to a decent start in 2012, with shares up over 16% so far.
If you look at the chart for Tesco, you’ll notice that this stock has been trading range bound for the past month between $13.31 on the downside and $14.87 on the upside. During that timeframe, the upside volume days have easily outpaced the downside volume days, which demonstrates that large traders are accumulating the stock. A high-volume move outside of that recent range should setup TESO for its next major trend.
Traders should now look for long-biased trades in TESO if this stock can manage to break out above some near-term overheard resistance at $14.87, and then above its 200-day moving average of $14.90 with high volume. Look for a sustained high-volume move or close above those level that’s near or well above its three-month average action of 180,366 shares. On Thursday, volume registered over 494,000 shares and the stock closed at $14.76 a share.
Traders should consider getting long this stock as long as it’s trending above $14.87 and $14.90 with strong upside volume flows. If TESO can sustain a trend above those price points, then this stock has a great chance to make a run at its most recent highs of $16.81 to $17.54 a share. I would no longer look for that move if TESO were to reverse course and move back below its 50-day moving average of $14.39 with high 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.