Stock Quotes in this Article: CBOE, FXEN, QCOM

WINDERMERE, Fla. (Stockpickr) -- U.S. stocks finally came under some selling pressure this week as unrest in the Middle East raised investor fears and oil prices soared.

The markets had been marching higher for months before the bears were finally able to gain some traction during the past couple of trading sessions. This doesn’t mean that the market is done with its uptrend, but it does mean that investors need to start playing some defense and protecting profits just in case the overall market trend does change.

Soaring oil prices and the destabilization of the Middle East are real issues that could take hold and cause stocks to trade significantly lower. However, if the problems in the Middle East remain contained, and if oil gives back some of that fear premium, then the market could easily start right back into its uptrend. First, the market is going to need to work off some of the near-term oversold conditions.

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    That’s already starting to take place today with the Dow Jones Industrial Average trading up around 70 points and the S&P 500 moving up about 11 points. Market players should now watch for stocks to rest a bit and trend sideways if the bulls still have control of the wheel. If you see stocks bounce hard to the upside or gap up big in the coming week and then give back those gains quickly, the bears might not be done selling off stocks.

    It’s important to remember that it’s not so much the news that’s important, but it’s how the market reacts to the news. It’s always a smart move to trade the trend in the markets; instead of trading what you think could or might happen. The market loves to humble traders with opinions who fight trends. Regardless of the current trend in the markets, there’s always going to be stocks that are breaking out and hitting new highs. That in itself is a trend that traders should stalk for new buying opportunities.

    A breakout occurs when a stock makes a move through a significant level of support or resistance, which is usually followed by heavy volume and increased volatility. Wall Street players love to see an upside breakout because it demonstrates strength in the underlying asset as the price breaks above a level of previous resistance. An upside breakout can also take a stock to new highs, which will generate a lot of interest as the stock shows up on sophisticated software that scans for this type of action.

    Here's a look at a number of solid breakout stock candidates that could have big upside potential from current levels.

    FX Energy

    One stock that’s starting to break out is new market leader FX Energy (FXEN), an independent oil and gas exploration and production company with principal production, reserves and exploration activities in Poland and oil production and oilfield service activities in the U.S. This stock is off to a monster start in 2011 with shares up over 88%. This company is operating in a perfect storm with soaring oil prices because it isn't leveraged to troubled areas of the world such as Libya or Egypt.

    If you take a look at the chart for FX Energy, you’ll see that the stock has started to break out above some past overhead resistance at around $10.60 to $10.73 a share. This bullish move on the stock has now pushed shares to a brand new 52-week high of $11.74 a share. It’s worth noting that this move in FXEN is coming on volume that’s currently tracking in at over 900,000 shares, which is well above the three-month average trading volume of 380,000 shares.

    This stock has been in a very strong uptrend for months now with the shares making higher lows and higher highs. This is extremely bullish action, and it shows that large institutional traders have been buying this stock on any pullback. Clearly, what we have here is traders jumping into low-priced energy names such as FXEN to play the booming crude oil market. Again, a name like FX Energy is a great play on rising oil also because it isn't exposed to riskier parts of the world.

    Now that this stock has broken out, it looks like FXEN is on a collision course with its all-time high price of over $16 a share. That’s a ton of upside even from its current level, so traders should watch how the stock acts at its next area of significant overhead resistance at around $12 a share. If the stock moves through that level on expanding volume, then get ready for a challenge of the all-time high at over $16 a share.

    Qualcomm

    Another stock that looks ready to break out is smartphone player Qualcomm (QCOM), which designs, manufactures and markets digital wireless telecommunications products and services based on its CDMA technology and other technologies. So far in 2011 this stock is off to a solid start with shares up by around 19%. Qualcomm has been a major beneficiary of the booming trend towards smartphones and other wireless devices.

    If you take a look at the chart for Qualcomm, you’ll see that this stock is quickly approaching breakout territory. Shares of Qualcomm are approaching some past overhead resistance at around $59.43 a share. If the stock can manage to trade through that level, then the stock will setup to break out and print a new 52-week high. This is another stock that’s been making higher lows and higher highs for months as the stock has been uptrending and acting extremely bullish.

    Clearly, investors want to own some Qualcomm which isn’t expensive trading at just 17 times forward price-to-earnings. Plus, the company is sitting on a gigantic pile of money, with around $10 billion in cash on their balance sheet and just $1.31 billion in total debt. Qualcomm is sitting in the sweet spot since the firm is one of the top component suppliers to Apple (AAPL). Apple is expected to introduce the second-generation iPad next week, and that should bring in some fresh new interest to Qualcomm for the near and long-term.

    The only problem I see here with Qualcomm, is that the volume today isn’t anything to write home about with only 4.7 million shares traded so far versus the three-month average trading activity of 14 million shares. I would like to see volume expand dramatically above 14 million shares in the coming days and weeks if the stock does manage to break out.

    If we do get the breakout in Qualcomm soon, then what’s really worth getting excited about is that the stock doesn’t really have any significant past overhead resistance to contend with until around $80 a share. That’s a huge amount of upside from current levels, so it’s well worth putting this stock on your trading radar if it does print new highs.

    George Soros' Soros Fund Management increased its position in Qualcomm in the most-recent quarter by 49.4% to 1.1 million shares. The stock was one of Goldman's eight best tech stocks for 2011.

    CBOE Holdings

    One final stock that’s breaking out already is CBOE Holdings (CBOE), which, in addition to its core options trading business, provides marketplaces for trading futures contracts and cash equities through its subsidiary, CBOE Futures Exchange, and its affiliate CBOE Stock Exchange. This stock is off to a sweet start in 2011 with shares up around 26%. Much of the move we’re seeing today in CBOE is being driven by an analyst upgrade. Credit Suisse upgraded the stock from neutral to outperform and raised its price target to $32 from $25 a share. The investment bank even mentioned that the company could be bought out in the coming months.

    If you take a look at the chart for CBOE Holdings, you’ll see that the stock has just started to break out above some past overhead resistance at around $28.20 a share. This bullish move is coming after the stock formed a sideways basing trading pattern between $28 and around $25.75 a share. Whenever you see a stock trade sideways like that, and then break out, it should be considered very bullish and constructive action since it means the stock built up the energy to trend higher.

    I would also point out that the volume on this move is very strong with over 1.3 million shares already changing hands versus the three-month average trading activity of 557,000 shares. If this move is the real deal, then CBOE should easily be on its way towards the next significant overhead resistance level at around $34 a share. That’s plenty of upside from its current level at around $29 a share, so keep this name on your trading radar.

    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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    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.