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5 Stocks Setting Up to Break Out - 56287 views
WINDERMERE, Fla. (Stockpickr) -- U.S. stocks were back on the upswing Thursday after European officials sought to calm nerves among traders over the potential collapse of Greece.
An IMF spokesperson said today that the IMF is standing by ready to support Greece as it struggles to manage its massive debt load. Greece also just announced that a new Greek cabinet will be introduced on Thursday that will help build back confidence in Greek government policies. The fear in the markets is that a complete collapse and default on Greek debt is imminent.
An even worse concern is that Greece is going to cause a ripple effect that hits other struggling European nations such as Spain, Portugal, Ireland and Italy. How could this effect the U.S.? Well, the financial markets are completely global now and tied together through our banking systems. If banks in Europe start to collapse, it will then make its way to the U.S. banks that have exposure to those European banks.
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Basically, Greece would cause a domino effect around the world if it defaults. I would also call into the legitimacy of the Euro. Of course, quantifying how bad things would get is difficult if things can just stay contained to Europe, but some market pundits think Greece could cause a Lehman Brothers-type crisis.
No matter what’s going on in Europe -- or any other part of the world, for that matter -- there’s always going to be stocks moving in and out of bull markets. Jim Cramer is famous for saying: “There’s always a bull market, and it’s my job to find it for you.” There’s always stocks breaking out, and finding them is what I strive to do for you on Stockpickr.com!
Trading breakouts is not a new game on Wall Street. This strategy has been by legendary traders such as William O’Neal, Stan Weinstein and Nicolas Darvas. Here‘s a look at a number of stocks that look poised to break out and trade higher from current levels.
Chelsea Therapeutics International
One small-cap stock that looks poised to break out is Chelsea Therapeutics International (CHTP), a development stage pharmaceutical company that focuses on acquiring, developing and commercializing products for the treatment of a variety of human diseases. This stock has been hammered to the downside in 2011, with shares off by over 30%.
If you take a look at the chart for Chelsea Therapeutics, you’ll see that the stock is quickly approaching a big breakout if it can manage to move above some past overhead resistance at $5.37 a share. The stock recently found some support at $4.15 a share and has now rallied back above its 50-day and 200-day moving averages.
What’s bullish about the price action in CHTP during the past few weeks is that it’s trending higher and volume is expanding dramatically on the up days. Three recent up days saw volume of 4.1 million, 1 million and 1.7 million shares traded, which is well above the three-month average volume of 569,000 shares.
Market players should now watch for a strong volume move through $5.37 a share either today or in the coming weeks. If we get that action, I would look to buy this stock for a potential run back to its 52-week high of $8.20 a share, or at least back to one of its next significant overhead resistance levels at $6.30 and $6.90 a share.
It’s worth noting that CHTP has a reasonable short interest. The current short interest as a percentage of the float for CHTP stands at 7.8%. The bears have also been increasing their bets from the last reporting period by 8.2%, or by about 309,000 shares. If CHTP breaks out, this one could see a solid short covering rally that sets the stock off to the upside.
Another small-cap stock that could be setting up for a bullish breakout trade is interClick (ICLK), an audience intelligence and targeting company, developing and executing data-driven campaign strategies for digital agencies and marketers. This is a technically strong stock, with shares up over 35% so far in 2011.
If you take a look at the chart for interClick, you’ll see that the stock is quickly approaching a major breakout if it can manage to move above $7.50 to $7.59 a share. The stock just made a perfect bounce off of its 50-day moving average, and now it’s eying that big breakout.
What I love about the technical picture on this stock is that volume is expanding rapidly in just the last few days as we move towards those breakout prices. Volume on Wednesday, an up day, was 639,000 shares, and today it’s already over 500,000 shares, with the stock up about 4%. That’s dramatically higher than the three-month average volume activity of 194,000 shares. This could mean that large institutions are loading up on the stock here.
One could be a buyer of this stock on any weakness and simply dump the trade if you see shares trade back below the 50-day moving average of $6.95 a share. I would add aggressively to this trade once you see ICLK close above $7.59 with big volume.
Keep in mind that if ICLK moves above $7.59 it will mark an all-time high on this stock. Nothing is more bullish than a stock breaking out to all-time highs with monster volume in a weak overall market. This is stock that must be on your trading radar because strength like this is becoming hard to find.
Cabot Oil & Gas
If you’re looking for an energy stock that’s starting to break out, then check out Cabot Oil & Gas (COG). This is an independent oil and gas company engaged in the development, exploitation and exploration of oil and gas properties located in the U.S. This stock is off to a blazing start in 2011, with shares up over 60%, earning it a spot on a recent list of the 5 Best-Performing S&P 500 Stocks of 2011.
If you take a look at the chart for Cabot Oil & Gas, you’ll see that this stock has been in a strong bullish uptrend for the past six months. During that timeframe, COG has been making higher highs and higher lows, which shows that the stock is in high demand when it pulls back or runs up. In fact, every time this name has pulled back to its 50-day moving average in the last couple of months, the stock has seen strong buying support swoop in to gobble up shares.
Now the stock is starting to break out and trade above some past overhead resistance at around $60.13 to $60.64 a share with volume. Today’s volume, which is coinciding with the breakout, has registered over 2.4 million shares traded as of midday. That volume is tracking well above the three-month average volume of 1.6 million shares. Two other recent up days saw volume that clocked in at 3.8 million and 3.5 million, which is also monster volume.
One could be a buyer of this stock if it can close above $60.64 which puts into breakout territory. You could use a few percentage points on your stop just in case the breakout fails in the near future.
Keep in mind that this move on COG could easily be setting the stock up to test its all-time high which is just above $70 a share. That gives you around 10 points of upside from here if the stock is destined to test that next resistance price.
If you’re looking for a breakout candidate that is benefiting off of the precious metals bull market, then check out DGSE Companies (DGSE), which buys and sells jewelry, bullion products and rare coins. This derivative play on the gold and silver market is off to a fast start in 2011, with shares up over 50%.
It’s not hard to figure out why this stock is in hot demand right now. The skyrocketing precious metals markets have spurred huge activity among consumers for trading in bullion products and rare coins. As people fear a slide lower in the U.S. dollar, they want to own hard assets like gold and silver coins to protect their wealth.
If you take a look at the chart for DGSE, you’ll see a stock that has ripped to the upside in just the last few months trading from a low of $4 a share to its recent high of $6.60 a share. Now the stock looks ready to hit a major breakout if it can manage to close above $6.60 a share.
Volume during the last five trading sessions, as this stock bounced off its 50-day moving average of $5.81 and now looks poised to challenge its breakout level, has been expanding dramatically. Five straight sessions, all up days, have seen volume clock in above 40,000 shares, which is well above its three-month average volume of 19,845 shares. Today, volume is already over 76,000 shares, which will mark the highest of those five sessions.
One could be a buyer of this stock if the breakout hits and if the stock can close above $6.60 a share. You could also buy this on any weakness as long as the 50-day moving average is not breached. This stock could easily be setting up for a big move higher considering how strong this stock is acting in a recent weak overall market.
Keep in mind if we get the breakout it will mark an all-time high for this stock. Everyone who has ever bought it will be making money. This is good company to be in when you own or trade any stock.
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ICO Global Communications
One final breakout candidate that could be setting up for a large move higher is ICO Global Communications (ICOG), a development stage company that engages in the development of a next-generation hybrid mobile satellite service with ancillary terrestrial components covering the U.S. and Canada. This stock is ridiculously strong, with shares up over 98% so far in 2011.
If you take a look at the chart for ICO Global, you’ll see that this stock has been basing inside of a sideways channel pattern for the last couple of months. That pattern has seen the stock trade between $3.20 on the upside and $2.40 on the downside. Now the stock looks ready to form a big breakout and move over $3.00 to $3.20 a share.
Remember that when a stock is basing like this and it tests the upper end of the channel numerous times, then it increased the probability of a future breakout. Shares of ICOG have tested $3 to $3.20 numerous times in the past couple of months. If this stock can finally breakout, it could set up shares for a big run higher.
I would watch for volume on any breakout that’s well above the three-month average activity of 266,000 shares. Make sure to see the stock close above $3.20 with volume for confirmation of a potential move higher. One could be a buyer of this stock once it gets above $3 and then buy aggressively above $3.20 a share. Use a tight stop in case it fails to hold the breakout.
The last time that ICOG was above $3.20 a share was back in 2008. The next significant resistance level on this stock sits at $4 to $5 a share, and the all-time high is above $6 a share. Lots of potential upside here if ICOG can breakout.
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.