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5 Stocks Setting Up to Break Out - views
WINDERMERE, Fla. (Stockpickr) -- U.S. stocks are off to a bullish start today, after tech king Apple (AAPL) reported stronger-than expected results on Tuesday after the market close. Shares of Apple are responding positively, with the stock up over 50 points to $615, or around 9% in early trading.
Market players are now awaiting a Federal Reserve policy announcement and chairman Ben Bernanke’s new conference, which will occur later today. Traders are eager to hear if Bernanke will make any hints at the possibility of more quantitative easing or if he will hint that the Fed could be done with its easy money policy.
Some traders believe that Bernanke will have a hard time convincing market participants that we need QE3 since Apple’s numbers were so strong. That said, it’s possible that Apple is simply taking market share from its competitors and the overall economy is nowhere near as strong. Only time will tell as we move deeper into earnings season and see how a broad base of companies perform from an earnings standpoint.
The Dow Jones Industrial Average is trading up 84 points and the S&P 500 is moving higher by around 14 points. The tech-heavy Nasdaq was benefiting the most from Apple’s monster quarter, with that index up a whopping 63 points.
This renewed strength in equities today could be signaling that the market wants to move significantly higher, especially if Mr. Market likes what Bernanke has to say. If that is indeed the case, then we’re going to see a number of stocks and specific sectors trigger big-time breakouts and move notably 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 trading within range of trigging a near-term breakout trade is Solta Medical (SLTM), which designs, develops, manufactures and markets professional and consumer energy-based medical device systems for aesthetic applications. This stock hasn’t done much so far in 2012, with shares off by around 2.2%.
If you take a look at the chart for Solta Medical, you’ll see that this stock has been trading range-bound since February, between $2.55 on the downside and around $3.18 on the upside. Shares of Solta Medical have recently started to move back above its 50-day moving average of $2.95 a share, and it’s been making higher lows. Whenever a stock makes higher lows, it technically demonstrates that large traders are paying up to own shares on every dip.
Market players should now look for long-biased traders in SLTM if it can manage to sustain a volume or close above some near-term overhead resistance at $3.18 to $3.26 a share. Look for volume on that move that registers near or above its three-month average action of 258,745 shares. If we get that action soon, look for SLTM to challenge its 2011 highs at $3.69 to $3.85 a share, and then potentially take those levels out and trend even higher.
If you anticipate the breakout and get SLTM off of weakness, then I would use a mental stop that’s right around its 50-day moving average of $2.95 a share. I would add to any long positions once SLTM takes out $3.26 and then above $3.85 a share with high volume. Volume on Tuesday was 469,900 shares traded, which is well above its average volume. It looks like large traders are starting position for that breakout, so keep this name on your trading radar.
Another stock that’s trading very close to triggering a major breakout trade is specialty pharmaceutical player Impax Laboratories (IPXL), which is engaged in development, manufacture and marketing of bio-equivalent pharmaceutical products, referred to as generics, in addition to the development of branded products. This stock is off to a decent start in 2012, with shares up over 20%.
If you take a look at the chart for Impax Laboratories, you’ll notice that this stock has been uptrending very strong since for the last six months, with shares soaring from a low of $16.50 to a recent high of $25.18 a share. During that uptrend, shares of Impax Laboratories have consistently made higher lows and higher highs, which is bullish technical price action. Since February, Impax has managed to trend above its 50-day moving average, and it’s now trading within range of a major near-term breakout trade.
Market players should now look for long-biased traders in IPXL if it can manage to sustain a high-volume move or close above some near-term overhead resistance at $25.08 to $25.18 a share. Look for volume on that move that hits close to or well above its three-month average volume of 621,125 shares. If we get that action soon, look for IPXL to make a run at its next significant overhead resistance levels of $28 to $28.75 a share.
This company is due to report earnings on May 1 before the market opens, so you can trade this potential breakout into that event, or you can wait to play it after earnings are released. If IPXL triggers that breakout before its earnings call, then look for some short-term long-biased trades. If you wait until after earnings, then just look to play it long if IPXL is trending above $25.18 with strong upside volume flows. As far as a mental stop, I would simply use some near-term support at $23.29.
One name in the biotechnology and drugs complex that looks ready to trigger a big breakout trade is pSivida (PSDV), which develops drug delivery products that are administered by implantation, injection or insertion. This stock is off to a monster start in 2012, with shares up over 120%.
If you look at the chart for pSivida, you’ll notice that this stock formed a perfect double bottom a few weeks ago at $1.47 to $1.51 a share. After forming that bullish chart pattern, shares have skyrocketed towards its current price of around $2.50 a share on heavy volume. That move has quickly pushed PSDV within range of triggering a major near-term breakout trade as long as it can manage to clear its 200-day moving average of $2.77 and some other near-term resistance.
Market players should now look for long-biased trades in PSDV if it can manage to trigger a breakout trade on a move or close above some near-term overhead resistance at $2.77, its 200-day moving average, and $2.85 a share with high volume. Look for volume on that move that registers near or well above its three-month average action of 122,935 shares. Volume for the past two trading sessions (both up days) has hit 232,200 and 336,000 shares. It looks like large traders are accumulating this stock as it approaches that big breakout move.
If PSDV can trigger that breakout soon, then this stock has tremendous upside potential since its next major overhead resistance levels sit at $4.00 to $4.81 a share. As long as PSDV is trending above $2.85 with strong upside volume flows, then this stock has a great chance to see some big-time upside. If you get long off weakness and anticipate that move, I would at simply use $2.20 to $2.30 as a mental stop, or I would use just below the 200-day at $2.77 if you wait for that level to get cleared first.
A stock in the aerospace and defense complex thats’ trading within range of major breakout trade is Lockheed Martin (LMT), a global security and aerospace company engaged in the research, design, development, manufacture, integration, and sustainment of technology systems and products. This stock is off to a decent start in 2012, with shares up over 12%.
If you look at the chart for Lockheed Martin, you’ll notice that this stock has been on a tear for the last six months, with shares soaring from a low of $70.64 to a recent high of $91.61 a share. During that uptrend, shares of LMT have consistently made higher lows and higher highs, which is bullish technical price action. Just a few weeks ago, LMT trade down to its 50-day moving average and it found some decent volume buying support. Now LMT is trending within range of challenging that recent high and triggering a major breakout trade.
Market players should now look for long-biased traders in LMT if this stock can manage to move or close above some near-term overhead resistance at $91.61 a share with high volume. Look for volume on that move that registers near or well above its three-month average volume of 1,985,860 shares. If we get that action soon, then LMT has a great chance of trending towards $100 a share or possibly much higher.
This company is due to report earnings on Thursday before the market opens. I would wait until after they report earnings, and then see if LMT can break out above $91.61 a share with high-volume. If we get that action, then I would hunt for long-biased trades as long as LMT is trending above $91.61 with strong upside volume flows. If LMT fails to hold a trend above $91.61 post-earnings, then I would simply avoid this stock from the long side.
One more stock that’s moving into range of triggering a big breakout trade is LCA-Vision (LCAV), a provider of fixed-site laser vision correction services at its LasikPlus vision centers. This is one of the top performing stocks in 2012, with shares up over 150%.
On Tuesday, LCA-Vision said its profit nearly doubled in the first-quarter as LasikPlus procedures continued to increase. The company reported a profit of $3.8 million, or 20 cents per share. That's up from $2 million, or 11 cents per share, one year earlier. Revenue jumped 12%, to $36.1 million from $32.3 million.
If you look at the chart for LCA-Vision, you’ll notice that this stock has just started to move back above its 50-day moving average of $7.06 a share with a sharp spike in upside volume. For the last few months, LCA-Vision has been trading range bound between $5.73 on the downside and $8.02 on the upside. Now this stock looks ready to take out some near-term overhead resistance levels and move above the top-end of that recent range.
Traders should now look for long-biased trades in LCAV if it can manage to break out above some near-term overheard resistance at $7.47 to $8.02 a share with high-volume. Look for a sustained high-volume move or close above those levels with volume that’s near or well above its three-month average action of 148,940 shares. On Tuesday, volume hit 162,000 shares and the stock closed at $7.38 a share which was bullish since it finished back above its 50-day moving average.
Traders should now consider getting long LCAV as long as it’s trending above its 50-day moving average of $7.06 a share, and if its trending and closing above $7.47 to $8.02 a share. If we see that action soon, then look for LCAV to challenge its next major overhead resistance levels at $9.24 to $9.40 a share and possibly take those levels out and move much higher. The probably if a significant move higher will increase if $9.40 a share is taken out with strong upside 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.