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5 Stocks Setting Up to Break Out

WINDERMERE, Fla. ( Stockpickr) --U.S. stocks were trading choppily between modest gains and losses on Friday as market players remained cautious following the previous session's massive drop in equity prices. Clearly, traders remain concerned about the state of the global economy and the unresolved debt crisis resolved in Europe.

As of most recent check, the Dow Jones Industrial Average was trading down by 13 points to 10,721, and the S&P 500 was trending up 5 points to 1,135. The tech-heavy Nasdaq was up by 16 points to 2,470.

From a technical perspective, traders need to keep a close eye on some major technical levels on the broad indexes in the coming days and weeks. A break and close below 10,604.07 on the Dow should be considered very bearish since that level marks the August lows. A move below that level on big volume could easily set the Dow up to test its next significant previous support level at 9936.62. Traders should watch the 1101.54 level like hawks on the S&P 500. A move and close below that level with volume could set the S&P 500 to test its next previous support zone at 1039.70.    

Related: 8 Dividend Stocks Increasing Payouts

That said, if the levels I mentioned do hold in the coming days and weeks, then look for a sharp short-covering rally to take hold. Be prepared to trade the market either way based off of what the major averages due at these key support zones.

With so many moving parts in the market, there's always some sector or stock that's acting strong and setting up to breakout. 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 trade higher from current levels.
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Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

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