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5 Stocks Setting Up to Break Out

Stocks in this article: RAVNLNCRMENTSCSSCPRX

Catalyst Pharmaceutical Partners

One more stock that's worth keeping on your breakout trading radar is Catalyst Pharmaceutical Partners (CPRX), which is focused on the development and commercialization of prescription drugs targeting addiction and diseases of the central nervous system. This stock has been trending modestly high in 2011, with shares up by around 7%.

If you look at the chart for Catalyst Pharmaceutical Partners, you'll see that this stock spiked big today and broke out above $1.20 to $1.21 a share on monster volume. The reason for the monster spike and volume was due to news that their investigational drug, CPP-115 has been designated as a Fast Track development program by the FDA for treatment of cocaine dependency. Off that news, the stock touched $1.39 a share and volume has already registered over 440,000 shares, which is well above its three-month average volume of 120,445 shares.

Market players should now watch for a sustained move and close back above $1.20 to $1.21 a share to trigger another breakout trade. Since those breakout levels were only tested intraday, I would now like to see if CPRX can close above those levels with volume. If we can get above those levels on the close, then this stock can setup to re-test $1.39, or potentially trend much higher. Keep in mind that traders sold the news, so this stock is going to need to regain its upside momentum to look attractive from the long side.

One could be a buyer of this stock near its current level of $1.10 a share and anticipate another big spike higher. I would simply use a mental stop at a major near-term support zone of $1.01 a share in case the bullish move is over. I would add to any long positions in CPRX on a close above its 200-day moving average of $1.31 and then above today's high of $1.39 on high-volume. If we get that action, this stock has upside towards $1.46 to $1.90 a share.

To see more breakout candidates, including Salix Pharmaceuticals (SLXP), Westport Innovations (WPRT) and Kratos Defense & Security Solutions (KTOS), check out the Breakout Stocks of the Week portfolio on Stockpickr.

-- Written by Roberto Pedone in Winderemere, Fla.

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At the time of publication, author had no positions in stocks mentioned.

Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.
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