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Breakout Stocks – Your Road to Riches?

Trading in stocks that initiate major  breakouts can be a path to massive profits. As soon as a stock trends to a new high, or takes out a former overhead resistance point, then it’s free to locate new buyers and momentum players that can, in time, push the stock up significantly in price.

A notable example of a successful breakout trade, recently, is BlackBerry maker Research In Motion (RIMM_), which I featured in Nov. 01′s “5 Stocks Under $10 Set to Trade Higher in November.” I wrote in that piece that RIMM was encountering some buying interest just above its 50-day moving average and it was beginning to trigger a breakout trade above some of its near-term overhead resistance levels at $8.08 to $8.49 per share with a decent upside volume flow. I said back then that if RIMM held that breakout, then the stock might ultimately hit $12 to $13 a share

 

And what happened? Plenty of shares of RIMM sold off a few days later from over $9 to $8.14 a share, but the stock never quite breached its 50-day moving average or its original breakout level of $8.08 a share. Shares of RIMM stayed in an uptrend and the stock continued to rocket towards a high of $12.30 a share. That’s showing a jaw-dropping gain of 55% in just the month of November for RIMM shares. Had you been focused on the breakout prices that I highlighted in that piece, then you would have been able to capitalize big off this move.

Candidates for breakout status are something that I tweet about on a nearly daily basis. I often tweet out high-probability setups, breakout plays and companies that are acting technically bullish. Those are some of the stocks that can go on to make strong moves to the upside. The great thing about breakout trading is that you can focus on price, volume and trend. You don’t have to pay attention to anything else. The charts will tell you all you need to know.

Trading breakouts is nothing new on Wall Street. This strategy was long ago mastered by legendary traders such as William O’Neal, Stan Weinstein and Nicolas Darvas. Those pros already understand that once a stock begins to break out above past resistance levels, and to hold above those breakout prices, then it’s no strecttch for it to trend significantly higher

Keeping that in mind, let’s take a look at five stocks that are beginning to set up to break out and trade at significantly higher levels

 

A name that is trending very close to a major breakout trade is Crocs (CROX_). The company is involved in the development, design, manufacturing, marketing and distribution of consumer products, mostly casual & athletic shoes & shoe charms, from specialized resins marketed as Croslite. The stock has been under control of the sellers for about the last six months, with shares down by 23%.

If you take a look at Crocs, you’ll notice that this stock dropped down in late October from around $16.60 to a low of $12.61 a share with very high downside volume. After that move, shares of CROX then went on to hit a low of $12 per share before bouncing back sharply to its current price of $13.80 a share. That recovery has now pushed CROX within range of initiating a major breakout trade to land back above its gap down day high at $14.04 a share.

Traders should now be looking for long-biased trades in CROX as it manages to break out above its gap down day high of $14.04 per share with high volume. Be on the lookout for a sustained move or close above $14.04 a share with a volume that lands near or above its three-month average volume of 276,850 shares. If this breakout triggers soon, then CROX can set up to re-fill some of that gap down zone that began at $16.60 a share.

Traders can expect to buy CROX off any weakness in anticipation of its breakout and may simply use a stop that sits just below some near-term support at $13 a share. One also might just buy CROX off strength as soon as it takes out $14.04 a share with volume and then place a stop that sits near $13.50 per share

Yet another stock that’s just beginning to flirt with a major breakout trade is Inteliquent (IQNT_), a company which provides full-scale network solutions, offering intelligent networking to resolve challenging interconnection and interoperability issues on a global level. This stock was destroyed by the sellers up until late in 2018, with shares off by disheartening 79%

If you examine the trading data for Inteliquent, you will see that this stock has been downtrending sharply for the last six months, with shares plummetting from $8.73 to its recent low of $2.10 a share. During this downtrend, shares of IQNT have consistently been making lower highs and lower lows, which would be considered bearish technical price action. Having said that, shares of IQNT are recently beginning to make a series of higher lows and higher highs, which is technical bullish price action. This stock is also beginning to rise off of previous oversold levels, since its current relative strength index (RSI) is reading at 26.50.

Wise market players would now look for long-biased trades in IQNT once it is able to break out above some near-term overhead resistance levels at $2.42 to $2.43 per share with high volume  Be ready for a sustained move or close above those points with volume that registers close to or above its three-month average action of 464,315 shares. If this breakout triggers soon, IQNT could then make a powerful bounce off oversold levels, with some possible upside targets being $3.50 to its 50-day at $4.41 a share.

One might look to buy IQNT off any weakness to be ready for that breakout and simply use a stop that sits close to some near-term support levels at $2.18 to $2.10 a share. One could also buy off strength once IQNT clears $2.42 to $2.43 a share with volume, and then use a stop close to $2.18 per share

Another name that’s beginning to move within range of triggering a big breakout trade is Aegerion Pharmaceuticals (AEGR_), which is aimed at the development and commercialization of therapeutics which treat lipid disorders. This stock was uptrending strongly through most of  2012, with shares up just over 40%.

If you look at the data for Aegerion Pharmaceuticals, you will quickly notice that this stock has been trending sideways for some time now, with shares moving between $18.33 on the low side and $23 a share on the high side. Shares of AEGR bounced higher in recent trading from $19.92 to just over $22 a share with acceptable volume. That spike has now pushed AEGR above someof its near-term overhead resistance at $21.66 a share, and it has moved it to within range of triggering a major breakout trade above $23 a share

Market players should now be looking for long-biased trades in AEGR as soon as it manages to break out above some near-term overhead resistance at $23 a share with high volume. Keep an eye out for a sustained move or close above $23 a share with volume that reaches near or above its three-month average action of 449,761 shares. If that breakout triggers any time soon, then AEGR will set up to re-test or possibly take out its all-time high of $25.92 a share

One last stock that is currently moving within range of triggering a near-term breakout trade is Zipcar (ZIP_), which operates a car sharing network. It is providing the freedom of ‘wheels when you want them’ to more than 560,000 Zipsters. This stock has been a regular target for the bears in 2018, with its shares down by 37%.

If you examine Zipcar’s data, you will notice that this stock has been strongly uptrending during recent months, with shares rocketing from a low of $5.90 to a most recent high of $8.64 a share. During that rise, shares of ZIP have mostly been making higher lows and higher highs, which would be bullish technical price action. That move has now landed ZIP within target range of triggering a near-term breakout trade.

Traders should now  know to look for long-biased trades in ZIP as soon as it is able to break out above some near-term overhead resistance levels at $8.64 to $8.69 per share with high volume. Look for it to make a sustained move or close above those level with a volume level that hits near or above its three-month average action of 350,502 shares. If this breakout triggers soon, then ZIP will set up to re-test or possibly take out its next major overhead resistance levels at $10.20 to $12 a share. And if that breakout hits, then ZIP should also move into a previous gap down zone from last August that started at around $10 a share.

Traders may look  to buy ZIP off any weakness during the period that it is trending within range of its 50-day moving average of $7.26 a share. One may also buy off strength from the time that ZIP takes out $8.64 to $8.69 a share and then simply use a stop close to $8 to $7.84 a share

Bear in mind that this stock has been heavily-shorted , since the current short interest as a percentage of the float for ZIP is 23.9%. The bears, also, have been upping their bets  from the most recent reporting period by 5.6%, which amounts to around 330,000 shares. If the breakout arrives soon, then ZIP could quickly see a monster short-squeeze as the bears rapidly move to cover some of their short positions.

 

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