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4 Stocks Setting Up to Break Out

WINDERMERE, Fla. (Stockpickr) --U.S. stocks are solidly in the red today as market players fear that slowing global growth is going to push world economies back into recession territory.

Triple-digit losses are ruling the tape, and now the Dow Jones Industrial Average has slipped below 12,000 for the first time since last March. The selloff at this point is so severe that the Nasdaq has dropped into the negative for the year.

China reported a small-than-expected surplus, citing slower export growth. British industrial production unexpected fell 1.7% in May vs. April, which marked the biggest month-to-month fall in 20 months. Before you extrapolate too much from the headlines, I think it's important to realize that the market was probably pricing in all the bad news weeks ago.

The Dow now looks like it's on a collision course to test its 200-day moving average at 11,687.44. If it fails to find any support at that technical level, then look for support at 11,555.48. The S&P 500 also looks like a lock to hit its 200-day moving average of 1253.50. The next major support level after that on the S&P is 1249.05. As for the Nasdaq, the 200-day sits at 2628.40, and its next significant support level is 2603.50.

Related: 9 Heavily Shorted Solar Stocks Set to Surge

Why I am mentioning all of these price levels? These are the areas that have a high probability of seeing some buying interest in the coming days and weeks. Large traders watch technical levels like the 200-day moving average like hawks, so you should do the same.

Before I get into some breakout ideas that are working in this sea of red, I want to discuss what I do on downtrend days, besides shorting stocks. Plain and simple, I look for stocks that are bucking the trend and moving higher in a weak tape. These are the type of names that could be presenting buying opportunities since they're showing relative strength. If investors aren't willing to sell their shares today, then that could mean buying demand is there. They could be oversold.

Some names that are standing out today and trending higher but aren't breakout plays include Molycorp (MCP), Sina (SINA), First Solar (FSLR), AK Steel (AKS), Atrinsic (ATRN) and Lululemon Athletica (LULU). Put these on your radar and consult the charts to see if any of these have bottomed or look ready to countertrend against the market weakness.

After I have identified names that aren't going down in a weak tape, I then look for the really strong stocks that are starting to break out. 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 potential trade higher from current levels.


Stock quotes in this article: LMLP, ARIA, AIS, FOSL, MCP, SINA, FSLR, ATRN, AKS, LULU 

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