Stock Quotes in this Article: AAPL, DGIT, PSUN, ZUMZ, VTUS

NEW YORK (TheStreet) -- Trading stocks that trigger major breakouts can lead to massive profits. Once a stock trends to a new high, or takes out a prior overhead resistance point, then it’s free to find new buyers and momentum players that can ultimately push the stock significantly higher.

A perfect example of a successful breakout recently was Digital Generation (DGIT). Last Wednesday, I noticed that this stock was trending up strong with above average volume. In my 4 stocks under $10 making big moves article, I flagged the stock for its strong action and highlighted the key price points that would trigger a near-term breakout trade.

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Guess what happened? Shares of Digital Generation triggered that breakout five days later once the stock took out some near-term overhead resistance at around $10 a share. The stock subsequently skyrocketed to high of $13.20 a share. That’s a 30% return in just a few days, all because the stock broke out with heavy volume.

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.

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    With that in mind, here’s a look at five stocks that are setting up to break out and trade higher from current levels.

    Apple

    One computer hardware player that’s trading within range of a major breakout trade is Apple (AAPL). This company, along with its subsidiaries, is engaged in designing, manufacturing and marketing mobile communication and media devices, personal computers, and portable digital music players. This stock is off to a hot start in 2012 with shares up over 40%.

    If you take a look at the chart for Apple, you’ll see that this stock sold off recently from a high of $644 to a low of $522.18 a share. After tagging that low, Apple has started to resume its uptrend with the stock now making higher highs and higher lows for the past month and change. That move is quickly pushing Apple within range of triggering a near-term breakout trade. That trade will hit once Apple takes out some near-term overhead resistance with above average volume.

    Market players should now look for long-biased traders in AAPL if it can manage to trigger a breakout above some near-term overhead resistance at $581.50, and then above its 50-day moving average of $583.14 a share with high volume. Look for a sustained move or close above those levels with volume that registers near or above its three-month average action of 22,968,500 shares. If we get that action soon, then Apple could easily hit $600 to $620 in the near future.

    Look for confirmation of higher prices in AAPL as long as it can maintain a trend above its 50-day moving average of $538.14 a share with strong upside volume flows. I really can’t get excited about Apple unless it’s trending above the 50-day, since a failure to take that level out could mean that the sellers are taking control of the stock back.

    Zumiez


    Another stock that’s trading within range of a major breakout trade is retail player Zumiez (ZUMZ). This company is a specialty retailer of action-sports-related apparel, footwear, equipment and accessories operating under the Zumiez brand name. This stock is off to a strong start in 2012 with shares up around 35%.

    If you take a look at the chart for Zumiez, you’ll notice that this stock has been uptrending strong for the last six months, with shares soaring from $22.57 to a recent high of $38.99 a share. During that monster move to the upside, shares of Zumiez have consistently made higher lows and higher highs, which is bullish technical price action. That bullish trend for Zumiez has now pushed the stock within range of triggering a major breakout trade.

    Market players should now look for long-biased traders in ZUMZ if it can manage to trigger a near-term breakout trade above some overhead resistance at $37.71 to $38.99 a share with high volume. Look for a sustained move or close above those levels with volume that registers close to or above its three-month average action of 417,069 shares. If we get that action soon, then ZUMZ will enter new 52-week high territory. That could easily push the stock north of $40 towards $50 a share very quickly.

    I would look to play that breakout for ZUMZ if it hits once the stock clears $37.71 to $38.99 with high volume, and simply use a stop a few percentage points below that level. I would completely avoid any long trades on ZUMZ if it fails to trigger that move and then drops back below its 50-day moving average of $35.76 with heavy volume.

    Amazon.com

    One name in the online retailer complex that looks ready to trigger a near-term breakout trade is Amazon.com (AMZN). This company serves consumers through its retail Web sites and focuses on selection, price and convenience. This stock is off to a decent start in 2012 with shares up around 26%.

    If you look at the chart for Amazon.com, you’ll see that this stock gapped up big in May from around $195 to over $225 a share on massive upside volume. Follow that major gap up, shares of Amazon.com have trended lower and recently hit a low of $206.37 a share. After hitting that low, the stock found buying interest right below its 50-day moving average of $209.26 a share, and has since then run up to its current price of near $218 a share. That move has now pushed this stock within range of a near-term breakout trade. That trade will hit once AMZN takes out some near-term overhead resistance with high-volume.

    Market players should now look for long-biased trades if AMZN can manage to take out some near-term overhead resistance at $221.49 a share with high-volume. Look for a sustained move or close above those levels with volume that’s near or above its three-month average action of 4,850,840 shares. If we get that action soon, then AMZN could easily trend higher towards $226 to over $230 a share very quickly.

    I would look to buy AMZN off strength once it takes out $221.49 a share with high-volume. Simply use a stop a few percentage points below that level if the breakout triggers soon. I don’t want to buy AMZN off weakness for this play since the stock could easily drop back towards its 50-day if it’s not ready to break out soon. There is some near-term support at $215 that could be used as a reference point if the stock pulls back before triggering that break out.

    Pacific Sunwear of California

    Another stock in the retail complex that’s trading very close to triggering a breakout trade is Pacific Sunwear (PSUN). This is a specialty retailer rooted in the action sports, fashion and music influences of the California lifestyle. The company sells a combination of branded and casual apparel, accessories and footwear designed to appeal to teens and young adults. This stock is off to a flat start in 2012 with shares down 1.4%.

    If you look at the chart for Pacific Sunwear of California, you’ll notice that this stock plunged big in the last three months, with shares dropping from a high of $2.54 to a recent low of $1.17 a share. During that massive drop, shares of Pacific Sunwear have consistently made lower highs and lower lows, which is bearish technical price action. That said, after hitting the low of $1.17 shares of PSUN has entered a new uptrend, with the stock now making higher highs and higher lows. This move is quickly pushing PSUN within range of triggering a major breakout trade.

    Traders should now look for long-biased traders in PSUN if it can manage to trigger a break out above some near-term overhead resistance at $1.79 to $1.82 a share with high-volume. Look for a sustained move or close above those levels with volume that registers near or above its three-month average action of 523,562 shares. If we get that move soon, then PSUN could easily re-test its March high of $2.54 a share and possibly take that level out to the upside.

    I would look to play PSUN off weakness as long as it holds a trend above its 50-day moving average of $1.48 or at least above some near-term support at $1.40 a share. Those are the areas I would set stops if you buy off weakness. If you want to play PSUN off strength, get long once it takes out $1.79 to $1.82 with high-volume, and then simple place a stop a few percentage points below those levels.

    Ventrus Biosciences

    One final stock that’s trending very close to triggering a near-term breakout trade is Ventrus Biosciences (VTUS). This is a specialty pharmaceutical company focused on the development and commercialization of late-stage prescription drugs for gastrointestinal disorders, specifically hemorrhoids, anal fissures and fecal incontinence. This stock is off to a solid start in 2012 with shares up over 30%.

    If you look at the chart for Ventrus Biosciences, you’ll see that this stock has been downtrending for the last month, with shares dropping from a high of $13.53 to a recent low of $9.54 a share. During that sharp move lower, shares of Ventrus have been making lower highs and lower lows, which is bearish technical price action. That said, the stock has held above its 200-day moving average of $9.21 a share, and its bouncing strong today right off its 50-day moving average of $10.07 a share with decent volume. The bounce today is quickly pushing VTUS within range of triggering a near-term breakout trade.

    Traders should now look for long-biased trades in VTUS if it can manage to trigger a near-term break out above $11.03 to $11.10 a share with high-volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 177,975 shares. If we get that breakout soon, then look for VTUS to re-test its May high of $13.53 and possibly take that level out to the upside.

    You can buy VTUS off of weakness as long as it does not violate its recent low of $9.54 a share. I would simply use a stop just below $9.54. It’s probably a better idea to buy off strength once it takes out $11.03 to $11.10 with high volume, and simply use a stop a few percentage points below those levels.

    To see more breakout candidates, check out the Breakout Stocks of the Week portfolio on Stockpickr.

     

    -- Written by Roberto Pedone in Winderemere, Fla.

     

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    This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

    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.