5 Stocks Poised for Breakouts

Melco Crown Entertainment

One stock that's trading within range of a big breakout is casino player in the Chinese Macau market Melco Crown Entertainment(MPEL). This stock has been ripping higher so far in 2012, with shares up over 24%. That could be just the start of a much bigger move if the stock can manage to breakout in the near future.

If you take a look at the chart for Melco Crown Entertainment, you'll notice that this stock formed a double bottom a few months ago between $8.19 and $8.32 a share. After marking that bottom, the stock took off and trended higher toward its current price of around $12 a share. That move higher for MPEL was very strong, with shares making higher lows and higher highs consistently, which is bullish price action. Now the stock has started to consolidate and trade range-bound between $11 and $12.27 a share

Market players should now watch MPEL for a breakout trade to trigger once the stock takes out $12.27 to $12.40 a share on high volume. Look for volume on a move and close above those levels that registers near or well above its three-month average volume of 6 million shares. If we get that action soon, then this stock has an excellent chance to trade back towards its $14 to $16.15 (its 52-week high) in the very near future.

Traders should look for long-biased trades in MPEL if the stock does break out soon above those overhead resistance levels I mentioned. I would simply use a mental stop near the 200-day moving average of $11.21 if you buy off weakness. If you buy off strength, use a tight mental stop just below the breakout levels.

I also featured MPEL, which shows up on a list of 5 Casino Stocks to Bet On in 2012, in "8 Stocks Rising on Monster Volume." Follow @stockpickr