5 Stocks Setting Up to Break Out

WINDERMERE, Fla. (Stockpickr) -- U.S. stocks are trending lower today after a disappointing reading on U.S. consumer confidence kept buyers at bay who were initially bullish on hopes for a European Union pact on their sovereign debt problems.

The Conference Board's index of U.S. consumer confidence in January hit 61.1 from a revised 64.8 in December, which is well below the 68.0 reading that Wall Street analysts' were expecting.

At last check, the Dow Jones Industrial Average was trading lower by 54 points and the S&P 500 was off by around 4 points. The tech-heavy Nasdaq was trending down 6 points. Despite the weakness in equity markets today, all three major index are trading within range of some major breakout levels. For the Dow, that level is 12,841.95, and for the S&P 500, it sits at 1333.47. The key technical breakout level for the Nasdaq is 2834.30.

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.If all three of the major indices break out soon, then we're going to see many sectors and stocks breakout and trade significantly higher. The shorts who have been betting against this market recently will help to fuel the move higher as they cover some of their positions. Being short a market or stock that's breaking out is rarely a good idea, since the breakout often leads to much higher prices.

Trading breakouts is not a new game on Wall Street. This strategy has been mastered by legendary traders such as William O'Neal, Stan Weinstein and Nicolas Darvas. These pros know that once a stock starts to break out above past resistance levels, and hold above those breakout prices, then it can easily trend significantly higher.

Here's a look at several stocks that are setting up to break out and trade higher from current levels.