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5 Stocks Setting Up to Break Out

WINDERMERE, Fla. ( Stockpickr) -- Despite the selloff in stocks on Thursday, all three major U.S. averages have either started to break out or are within range of breaking out.

The Dow Jones Industrial Average broke out recently above some stiff overhead resistance at around 12,391. We hit 12,450 on Thursday but pulled back to close at 12,409. That's still above the breakout price of 12,391. What market players should watch for now is a weekly close on the Dow that's firmly above 12,391. That would be bullish for many of the industrial stocks that litter the Dow.

On the S&P 500, we recently traded above some past overhead resistance at 1332, which is bullish, but we still need to trade above 1344, which is the major breakout level that everyone is watching. If the S&P 500 takes out 1344, then the next level that will come into focus is 1400. I would like to point out that it's constructive to see that the S&P 500 did close at 1333 on Thursday. If we get the breakout on the S&P, then many market-leading stocks are going to trend higher.

Technology stocks remain the laggards right now in the market. The Nasdaq did manage to move above some near-term resistance at 2802, but it has still failed to even get close to breaking out above 2840. Plus, the Nasdaq closed at 2796 yesterday, which is below its near-term breakout level of 2802. This doesn't mean that the Nasdaq won't join the party if the other two indices break out soon, but it does mean there's some relative weakness in technology stocks.

Related: 9 Semi Stock Takeover Targets With Upside

It's very crucial that market players watch how all three major indices behave in the next couple of days and weeks. If U.S. stocks are going to start another trend higher, then we're going to need to break out with positive price action. It would help if strong volume accompanies any future breakout in U.S. stocks. If we do trade to new highs, then we're going to see tons of stocks follow the averages and breakout themselves.

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. Following in their footsteps, here's a look at a number of stocks that look poised to break out and trade significantly higher from current levels.
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