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5 Stocks Setting Up to Break Out

Gulf Resources

One chemical manufacturer that looks ready to break out is Gulf Resources (GURE - Get Report), which manufactures and trades bromine and crude salt, and manufactures and sells chemical products used in oil and gas field exploration, oil and gas distribution, oil field drilling, wastewater processing, papermaking chemical agents and inorganic chemicals. This stock is off to a decent start in 2011, with shares up over 18%.

If you take a look at the chart for Gulf Resources, you'll see that this stock has started to break out above a key descending trend line from $4 a share that started back in late May. This is a very important technical move on GURE because for the past couple of months, the stock has failed to move higher every time it has touched this descending trend line. Now the trend has changed since GURE is easily trending above that key descending trend line.

Traders should also make note of the clear bullish chart pattern on this stock that also started back in May. Every time the stock has pulled back, traders have been paying up to buy shares. This has created a pattern of higher lows, which is very bullish. On top of that, GURE is starting to break out above some past overhead resistance at $3.60 a share

One could be a buyer of this breakout and simply use a mental stop just below the 50-day moving average of $3.22 a share. I would add to any long position if you see this stock move above $4 a share, which is another key resistance level. A move above $4 should setup GURE to test $4.90 a share or possibly even higher.

It's worth pointing out that this stock is heavily shorted by the bears. The current short interest as a percentage of the float for GURE is a rather large 19.3%. Traders should keep a close eye on GURE for a breakout trade, since this stock could easily short squeeze big with that many bears circling around this name.

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