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5 Stocks Setting Up to Break Out - 46853 views
WINDERMERE, Fla. (Stockpickr) -- U.S. stocks are dropping sharply today as the market deals with some serious rumors of a potential debt default for Greece that could happen over the weekend. This time the rumors actually have some validity since Greek credit default swaps are soaring to new highs. Many market observers fear that a Greece default could spiral out of control and lead to more details out of other PIIG nations such as Italy and Spain.
Recently the Dow Jones Industrial Average was plunging by over 325 points to 10,969, and the S&P 500 was off by 29 points to 1157. The tech-heavy Nasdaq was lower by 63 points at 2466.
Huge down days like today are a great time for market players to identify the sectors and stocks that are not being taken to the woodshed. If the bears can’t knock a sector or stock down today, then it could mean there’s an underlying bid that should be ignored. This is an easy way for traders to identify relative strength in the markets.
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The most obvious strength today is coming out of the semiconductor sector. Semiconductor stocks trading higher today include Micron Technology (MU), Marvell Technology (MRVL), Entropic Communications (ENTR), Texas Instruments (TXN) and Novellus Systems (NVLS). These are just some of the names that warrant a deeper look, with an over-300-point drop on the Dow failing to push these lower.
The top traders in the world know that markets are made up of thousands of stocks and tons of sectors. With so many moving parts, there’s always some sector or stock that’s acting strong and doing its own thing. 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.
One stock that could be setting up for a big breakout is Adventrx Pharmaceuticals (ANX), a specialty pharmaceutical company focused on acquiring, developing and commercializing product candidates. This stock is down big so far in 2011, with shares off by over 55%, but the stock is ripping higher today by more than 14%.
The move higher in the stock today is due to Vista Partners' starting coverage on the stock with a $7.50 price target. A Vista analyst said that the stock currently trades at a negative enterprise value since its market cap is less than the cash position on its balance sheet.
If you take a look at the chart for Adventrx, you’ll see that this stock recently gapped down big in mid-August from $2.75 a share to under $1 a share. Following that gap down, the stock has now started to trade into a sideways basing pattern between 80 cents and $1.20 a share. That massive gap down in price has also created an oversold condition on the stock as measured by its relative strength index reading of 36. Oversold can always get more oversold, but if this stock does manage to break out soon, then it could bounce big off these depressed levels.
Traders should now watch for a breakout if ANX moves above $1.21 a share on solid volume. Look for volume that’s trading in close to or above its three-month average action of 1.5 million shares. Volume today is strong with over 2.8 million shares traded and the stock up over 15% to $1.06 a share.
You could be a buyer of this stock once it clears $1.21 with volume, or you could buy it off any weakness as long as the recent higher lows pattern holds. If you see ANX take out $1.21 with volume, then I think this stock will move big and start to fill some of that massive gap down in price. You could see a run toward $2 a share or possible even higher.
Adventrx shows up on a list of Hot Biotech Trades for Second-Half 2011.
Another potential breakout trade could be developing for BioSante Pharmaceuticals (BPAX). This is a specialty pharmaceutical company focused on developing products for female sexual health, menopause, contraception and male hypogonadism. This stock is a top performer in 2011, with shares up over 65% so far this year.
This stock has a number of catalysts quickly approaching since the company is going to present at three health care conferences in September. Any bullish news out of those conferences could move the stock significantly to the upside.
If you take a look at the chart for BioSante, you’ll see that this stock dropped in mid-July from a high of $4.02 a share to its recent low of $2.02 a share. Since hitting that low, the stock has started to make higher lows, which is bullish and could be signaling a trend change. The stock has also started to trade above a key descending trend line, which is also bullish.
Market players should now watch for this stock to close above its 50-day moving average of $2.86 a share and above some near-term overhead resistance at around $2.92 a share. If you see a strong volume close above those levels, then it could be a sign that this stock wants to trend significantly higher.
You could either buy the next breakout in BPAX or you could buy it on any weakness as long as the recent pattern of higher lows isn’t violated with a move below $2.40 a share. If you buy the next breakout above $2.92, I would then add aggressively if the stock trades above $3.11 a share. That’s the last major resistance level for this stock until it trades closer to $4 a share.
This is a heavily shorted stock, with over 16% of the float sold short by the bears. Any future breakout could easily spark a big short-covering rally as the bears look to lock in some of their recent profits when the stock dropped from over $4 a share.
BioSante shows up on a list of 10 Biotech Trades for the Second Half of 2011.
Another biotech name that could be setting up for a breakout trade soon is Dendreon (DNDN), a biotechnology company focused on the discovery, development and commercialization of therapeutics that may improve cancer treatment options for patients. This stock has been beaten down big so far in 2011, with shares off by over 65%.
This maker of prostate-cancer drug Provenge, just announced that it plans to cut 25% of its workforce as it restructures the firm in an effort to cut costs and offset disappointing sales of its only commercialized product. The workforce reduction is estimated to save the company $120 million annually.
If you take a look at the chart for Dendreon, you’ll see that this stock has been destroyed, dropping from over $40 a share in July to its recent low of $9.22 a share hit in mid-August. The stock gapped down big recently from $34 to under $12 a share on monster volume. That said, following the big move lower the stock has now started to form a basing pattern between $10 and about $12.50 a share. The stock has also started to print higher lows since hitting $9.22, which is a potential bullish trend change.
Market players should watch for a breakout trade if DNDN can manage to move above some near-term overhead resistance at $12.70 to $13.95 a share. A move above those levels on strong volume could send this stock significantly higher as it fills some of that large gap down. Look for volume that’s tracking in close to or well above its three-month average action of 5.4 million shares.
One could be a buyer of this stock on any weakness and anticipate the breakout. I would use a stop just a few percentage points below $10 a share in case this stock isn’t done going lower. It looks like some buyers are moving into the stock today since shares are trading up 2% in the face of the major market slide on solid volume of over 6.7 million shares.
This is a heavily shorted stock, with over 9.6% of the float sold short by the bears. Any future breakout could easily cause the short-sellers to cover some of their profitable bets and buy the stock back for a big bounce.
If you’re looking for a potential breakout play in the semiconductor complex, then take a look at OmniVision Technologies (OVTI), which designs, develops and markets semiconductor image-sensor devices. The company's main products are image-sensing devices, which it refers to as CameraChip image sensors, that capture an image electronically and are used in a number of consumer and commercial mass-market applications. This stock has been crushed this year by the bears, with shares off by over 40% so far in 2011.
If you take a look at the chart for OmniVision, you’ll see that this stock crashed recently and gapped down huge from over $26 a share to its recent low of $16.61 a share on monster volume. That gap down happened after the company issued a disappointing earnings report. Since that gap down, the stock has started to print higher lows, which could be a bullish trend change. Shares of OVTI have also been basing between $16.61 and $19.50 since that gap down.
Market players should now watch for a breakout trade to trigger with a move above $18.43 and $19.42 a share. I would want to see a strong volume move above those levels that tracks in close to or greater than its three-month average volume of 3 million shares.
One could be a buyer of this stock on any notable weakness in anticipation of the breakout. I would simply use a stop near or a few percentage points below $16.61 a share in case the bears aren’t don’t beating this name lower. If you don’t want to buy on weakness, then get long on any move above $18.43 to $19.42 a share that comes with strong volume.
This stock has a decent short interest with 11.5% of the float sold short by the bears. If we see OVTI move back into that gap zone, then I think this stock is going to move big as the bears cover some of their recent wins and buy the stock back. I featured it recently in "5 Earnings Short-Squeeze Plays."
One more breakout candidate is Sodastream International (SODA), which, along with its subsidiaries, is engaged in developing, manufacturing and marketing home beverage carbonation systems and related products. Despite a recent beat-down in this stock, shares are up over 25% so far in 2011.
If you take a look at the chart for Sodastream, you’ll see that this stock has been hammered huge since printing a high of $79.72 in mid-August and then sliding down to its recent low of $32.50 a share. What you have here is what can happen easily with any heavily-shorted momentum stock. Once Wall Street sours on the name, then shares can fall big in a short timeframe. That said, the stock has started to form a potential bottoming pattern with shares making higher lows during the past few weeks.
Traders should now put this name on their radar for a breakout play if the stock can manage to clear some near-term overhead resistance at around $43 a share. Watch for a move above that level on strong volume to confirm that SodaStream wants to bounce big. I would like to see volume that’s tracking in close to or greater than its three-month average volume of 2.1 million shares.
You could be a buyer of this stock on any weakness with a stop a few percentage points below $38 a share. I am using $38 because that was a prior resistance price which I would like to see become support now if the stock wants to head higher. You could also wait for the breakout above $43 before you get long SODA. A move over $43 could start a trend that takes the stock back into the mid-$50s.
This is a heavily-shorted name, with over 27% of the float is sold short by the bears. Those short-sellers have also been increasing their bets from the last reporting period by around 7.4%, or by about 249,000 shares. This could setup the name for a sharp move higher if we do see a breakout soon, since the bears might want to lock-in some of their recent profits and buy the stock back.
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.