DELAFIELD, Wis. (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.
One example of a successful breakout trade I flagged recently was biopharmaceutical player Vanda Pharmaceuticals (VNDA), which I featured in July 11's "5 Stocks Setting Up to Break Out" at around $8.70 a share. I mentioned in that piece that shares of VNDA had recently pulled back sharply from its 52-week high of $13.30 to its low of $7.44 a share. Following that pullback, shares of VNDA were starting to reverse its downtrend and enter an uptrend with the stock moving back above its 50-day moving average. That move was quickly pushing VNDA within range of triggering a near-term breakout trade above some key overhead resistance levels at $8.74 to $10 a share.
Guess what happened? Shares of VNDA started to move into breakout territory the following week with the stock hitting an intraday high of $9.50 a share. Then shares of VNDA pulled back again back below its 50-day moving average to a low of $8.01 a share. That pullback never took VNDA below that prior $7.44 a share low. Then VNDA exploded higher on July 30 with monster upside volume after U.S. regulators said they would give a priority review to the company's treatment for sleep disorders. This stock went on to hit an intraday high of $12.12 a share on July 31 with strong upside volume. That represents a gain of close to 40% for anyone who bought the stock near $8.70 a share.
Breakout candidates are something that I tweet about on a daily basis. I frequently tweet out high-probability setups, breakout plays and stocks that are acting technically bullish. These are the stocks that often go on to make monster moves to the upside. What's great about breakout trading is that you focus on trend, price and volume. You don't have to concern yourself with anything else. The charts do all the talking.
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.
With that in mind, here's a look at five stocks that are setting up to break out and trade higher from current levels.
AcelRx Pharmaceuticals
One stock that's starting to trend within range of triggering a major breakout trade is AcelRx Pharmaceuticals (ACRX), a specialty pharmaceutical company involved in the development and commercialization of therapies for the treatment of acute and breakthrough pain. This stock is off to a booming start for the bulls so far in 2013, with shares up a whopping 189%.
If you take a look at the chart for AcelRx Pharmaceuticals, you'll notice that this stock recently formed a double-bottom chart pattern at $11.46 to $11.43 a share. Following that bottom, shares of ACRX have now started to spike higher and move within range of taking out some key near-term overhead resistance levels. If those levels get taken out with volume soon, then ACRX will trigger a major breakout trade.
Traders should now look for long-biased trades in ACRX if it manages to break out above some near-term overhead resistance levels at $12.57 to its 52-week high at $13.50 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average volume of 648,667 shares. If that breakout triggers soon, then ACRX will set up to enter new 52-week-high territory above $13.50, which is bullish technical price action. Some possible upside targets off that breakout are $17 to $20 a share.
Traders can look to buy ACRX off any weakness to anticipate that breakout and simply use a stop that sits right below $11.43 a share, or near its 50-day at $10.27 a share. One could also buy ACRX off strength once it takes out those breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.
This stock is a favorite target of the bears, since the current short interest as a percentage of the float for ACRX is very high at 16.9%. The bears have also been increasing their bets from the last reporting period by 35.5%, or by about 836,000 shares. If that breakout triggers soon, then ACRX could easily experience a monster short-squeeze, so make sure to put this name on your breakout trading radar.
Jive Software
Another stock that looks poised to trigger a near-term breakout trade is Jive Software (JIVE), which provides a social business software platform. It provides the Jive Engage platform for its customers for business. This stock has been under selling pressure over the last six months, with shares off by 14%.
If you take a look at the chart for Jive Software, you'll notice that this stock recently gapped down sharply from over $17 a share to under $13.50 a share with heavy downside volume. Following that move, shares of JIVE went on to tag its recent low of $12.74 a share. That move has now pushed shares of JIVE into oversold territory, since its current relative strength index reading is 19.23. Oversold can always get more oversold, but it's also an area from which a stock can experience a powerful bounce higher. Shares of JIVE are now starting to trend back up and move within range of triggering a near-term breakout trade.
Traders should now look for long-biased trades in JIVE if it manages to break out above Friday's intraday high of $13.87 a share and then once it clears its gap down day high of $14.13 a share high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 812,638 shares. If that breakout triggers soon, then JIVE will set up to re-fill some of its previous gap down zone that started just above $17 a share.
Traders can look to buy JIVE off any weakness to anticipate that breakout and simply use a stop that sits right below its recent low of $12.74 a share. One could also buy JIVE off strength once it takes out those breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.
The short-sellers love this stock, since the current short interest as a percentage of the float for JIVE is very high at 17.6%. This stock could easily experience a sharp short-covering rally if it gets into that gap with volume soon, so make sure to put this name on your breakout trading radar.
Cliffs Natural Resources
Another stock that's starting to move within range of triggering a near-term breakout trade is Cliffs Natural Resources (CLF), a mining and natural resources company that produces iron ore pellets, fines and lump ore, and metallurgical coal. This stock has been hammered by the sellers so far in 2013, with shares off by 47%.
If you look at the chart for Cliffs Natural Resources, you'll notice that this stock recently formed a double bottom chart pattern at $15.50 to $15.41 a share. Following that bottom, shares of CLF have started to uptrend strong, with the stock moving higher from its low of $15.41 to its intraday high of $20.50 a share. During that uptrend, shares of CLF have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of CLF within range of triggering a near-term breakout trade.
Traders should now look for long-biased trades in CLF if it manages to break out above some near-term overhead resistance levels at $20.30 to $21.96 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 9.87 million shares. If that breakout triggers soon, then CLF will set up to re-test or possibly take out its next major overhead resistance levels at $23.59 to its 200-day moving average at $26.26 a share. Any high-volume move above its 200-day will then put $30 within range for shears of CLF.
Traders can look to buy CLF off any weakness to anticipate that breakout and simply use a stop that sits right below some key near-term support at $19.27 a share, or right near its 50-day at $17.93 a share. One can also buy CLF off strength once it takes out those breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.
This is another name that is very popular among the bears, since the current short interest as a percentage of the float for CLF is very high at 36.8%. If that breakout hits soon, then CLF could easily see a monster short-squeeze, so be prepared to play it if it triggers with volume.
Celldex Therapeutics
Another stock that's quickly moving within range of triggering a major breakout trade is Celldex Therapeutics (CLDX), which is focused on the development and commercialization of several immunotherapy technologies for the treatment of cancer and other difficult-to-treat diseases. This stock has been red hot so far in 2013, with shares up 222%.
If you look at the chart for Celldex Therapeutics, you'll notice that this stock has recently formed a perfect double bottom chart pattern at $19.20 a share. Following that bottom, shares of CLDX have started to uptrend and move within range of triggering a major breakout trade. That trade will trigger if CLDX manages to take out some key near-term overhead resistance levels with strong upside volume flows.
Traders should now look for long-biased trades in CLDX if it manages to break out above some near-term overhead resistance at $21.88 to its 52-week high at $21.98 a share volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 1.79 million shares. If that breakout triggers soon, then CLDX will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $25 to $30 a share.
Traders can look to buy CLDX off any weakness to anticipate that breakout and simply use a stop that sits right below $19.20 a share, or below more support at $18 a share. One can also buy CLDX off strength once it takes out those breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.
The short-sellers love to target this stock, since the current short interest as a percentage of the float for CLDX is pretty high at 10.5%. A decent short-squeeze could materialize for CLDX if it breaks out soon with volume, so keep an eye on this name.
Alnylam Pharmaceuticals
My final breakout trading prospect is Alnylam Pharmaceuticals (ALNY), which is developing novel therapeutics based on RNA interference, a naturally occurring biological pathway within cells for selectively silencing and regulating the expression of specific genes. This stock has been on fire so far in 2013, with shares up 166%.
If you look at the chart for Alnylam Pharmaceuticals, you'll notice that this stock has been uptrending strong for the last month, with shares moving higher from its low of $42.19 to its intraday high of $49.73 a share. During that uptrend, shares of ALNY have been consistently making higher lows and higher highs, which is bullish technical price action. That move is coming after ALNY recently pulled back from its 52-week high of $51 to $42.19 a share. Shares of ALNY are now quickly moving within range of triggering a near-term breakout trade.
Traders should now look for long-biased trades in ALNY if it manages to break out above Friday's intraday high of $49.73 a share and then once it takes out its 52-week high at $51 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 647,812 shares. If that breakout triggers soon, then ALNY will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $55 to $65 a share.
Traders can look to buy ALNY off any weakness to anticipate that breakout and simply use a stop that sits right below some key near-term support at $45 a share, or below more support at $42.19 a share. One could also buy ALNY off strength once it clears those breakout levels with volume and then simply use a stop that sits a conformable percentage from your entry point.
Keep in mind that this company is set to report earnings on Thursday, August 8, 2013 after the market close. Temper your upside expectations if you play the breakout ahead of the quarter, and look for much bigger upside after the quarter if the stock remains in its uptrend. Holding through earnings is always risky, so only play ALNY after earnings if the stock reacts positively to the numbers.
To see more breakout candidates, check out the Breakout Stocks of the Week portfolio on Stockpickr.
-- Written by Roberto Pedone in Delafield, Wis.
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