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5 Stocks Setting Up to Break Out - views
WINDERMERE, Fla. (Stockpickr) -- 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 powerful breakout recently was Osiris Therapeutics (OSIR). On May 17, I noticed that this stock was starting to move to the upside with strong volume. In my 7 stocks under $10 making big moves article, I highlighted this stock for its bullish price action, and I mentioned the key levels that would trigger a major breakout trade.
Guess what happened? Shares of Osiris Therapeutics triggered that breakout just a few days later, and the stock exploded from around $5.50 to its current price of over $8.50 a share. That is a massive move higher in a very short timeframe. Momentum traders were watching the same levels that I was, so once OSIR took out its overhead resistance at $5.50 the stock just exploded to the upside.
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.
One communications services player that’s trading within range of a near-term breakout trade is Lumos Networks (LMOS), a fiber-based service provider in the Mid-Atlantic region. The company provides data, broadband, voice and Internet protocol services over fiber optic network. This stock is off to a bearish start in 2012, with shares off by over 30%.
If you take a look at the chart for Lumos Networks, you’ll see that this stock was stuck in a nasty downtrend from the start of this year until May. During that downtrend, shares of Lumos Networks plunged from a high of $17.32 to a recent low of $7.65 a share. As this stock made that large plunge, shares of Lumos Networks consistently made lower highs and lower lows, which is bearish technical price action. That said, this stock has stopped that downtrend for the past two months, with shares making higher lows and now trading into position to trigger a breakout trade.
Traders should now look for long-biased traders in LMOS if it can manage to trigger a break out above some near-term overhead resistance at $10.40 a share with high-volume. Look for a sustained move or close above $10.40 with volume that hits near or above its three-month average action of 80,686 shares. If we get that action soon, then LMOS could easily spike higher towards $12 to $14 a share in the near future.
One could be a buyer of LMOS once it takes out $10.40 with volume, and then stay with the trade if it maintains a trend above that level. This stock saw heavy volume buying on Thursday, after shares closed up around 10% and volume finished at 162,700 shares traded. Look for a continuation pattern of strong upside volume for LMOS if it triggers that breakout soon.
Another stock that’s trading within range of a breakout trade is major drugs player Achillion Pharmaceuticals (ACHN), a biopharmaceutical company focused on the discovery, development and commercialization of treatments for infectious diseases. This stock is off to slow start in 2012, with shares off by around 13%.
If you take a look at the chart for Achillion Pharmaceuticals, you’ll notice that this stock has been downtrending for the past six months, with shares dropping from a high of $12.46 to a recent low of $5.78 a share. During that move lower, shares of Achillion Pharmaceuticals have mostly made lower highs and lower lows, which is bearish technical price action. That said, during the last month and change, this stock has found buying interest near $6 a share and selling resistance near $7.60 a share.
Market players should now look for long-biased traders in ACHN if it can manage to trigger a near-term breakout above some overhead resistance at $6.89 to $7.75 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 1.1 million shares. If we get that action soon, then ACHN will be trading back above both its 50-day moving average at $7.33, and its 200-day moving average at $7.75 a share. That action would give this stock a chance to trade towards $9.50 to $11 a share.
I would look to play ACHN off strength and get long once it takes out $6.89 with volume, and then add above $7.75 a share. One could use a stop near $6 a share. You could also buy off weakness near $6 and simply anticipate the breakout with a stop just a few percentage points below that level.
One name in the tobacco complex that looks ready to trigger a major breakout trade is Star Scientific (CIGX), a technology-oriented company with a focus to reduce the harm associated with the use of tobacco. This stock is off to a monster start in 2012, with shares up over 80%.
If you look at the chart for Star Scientific, you’ll see that this stock has been uptrending strong since April, with shares skyrocketing from a low of $2.66 to a recent high of $4.21 a share. During that sharp move to the upside, shares of Star Scientific have consistently made higher highs and higher lows, which is bullish technical price action. That move has now pushed this stock into range of triggering a major breakout trade.
Traders should now look for long-biased trades if CIGX can manage to take out some near-term overhead resistance at $4.21 to $4.24 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 1.3 million shares. If we get that action soon, then CIGX could explode to the upside and re-test and possibly take out its three-year high of $5.35 a share.
One could look to buy this stock off weakness and simply use a stop around some near-term support at $3.80 a share. I personally would rather buy it off strength once it blasts through $4.21 to $4.24 with high-volume. If you buy off strength, simply use a stop around $4 in case it’s not ready to sustain that breakout just yet.
A stock in the computer hardware complex that’s trading very close to triggering a major breakout trade is Cray (CRAY), which develops, manufactures, markets and services high-performance computing systems, known as supercomputers and provides engineering services related to HPC systems and solutions. This stock is blazing a trail to the upside so far in 2012, with shares up around 75%.
If you look at the chart for Cray, you’ll notice that this stock gapped up big in late April twice as the stock skyrocketed from around $7 to a high of $11.50 a share. Those gap-ups were accompanied with heavy upside trading volume. Following that action, shares of Cray have trended sideways for the past month and change, between $10 on the downside and $11.87 on the upside. That move has now pushed Cray within range of triggering a major near-term breakout trade and taking out its upside resistance.
Market players should now look for long-biased traders in CRAY if it can manage to trigger a break out above some near-term overhead resistance at $11.87 a share with high-volume. Look for a sustained move or close above $11.87 levels with volume that hits near or above its three-month average action of 393,229 shares. If we get that move soon, then CRAY could easily trade up towards $15 a share or higher.
One could look to play CRAY off weakness as long as it holds above that near-term support at $9.99 a share, or at last resort its 50-day moving average of $9.83 a share. I would use those levels for stops if you buy off weakness. I would rather get long off strength once CRAY clears $11.87 with high-volume, and then simply use a stop near $11 or higher in case the breakout fails.
One more stock that’s trending very close to triggering a major breakout trade is Bio-Reference Laboratories (BRLI), which is engaged in providing laboratory testing services, to customers in the greater New York metropolitan area, as well as to customers in other states. This stock is off to a solid start in 2012, with shares 50%.
If you look at the chart for Bio-Reference Laboratories, you’ll notice that this stock bottomed recently at around $18.29 a share, which also happened to be right below its 200-day moving average of $19.21 a share. After bottoming at that level, shares of Bio-Reference Laboratories have soared back above its 50-day moving average of $21.60 a share. That move has now pushed BRLI into range of triggering a major breakout trade, since the stock is flirting with new 52-week highs.
Traders should now look for long-biased trades in BRLI as long as it maintains a trend above its key breakout levels at $24.51 to $24.48 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 227,772 shares. If we see BRLI hold that trend, then this stock could easily continue its uptrend towards $30 a share or higher in the near future.
One can buy BRLI off of weakness and simply use a stop around some near-term support at $23 a share. Another way to play BRLI is to buy off strength and get long once it clears $24.48 to $24.51 a share with heavy volume. If you buy off strength, then I would simply use a stop that’s a few percentage points below those levels in case that breakout fails to hold.
I also included Bio-Reference recently in "5 Stocks That Could Pop Post-Earnings."
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.