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5 Breakout Stocks to Trade for Gains

Dynex Capital

Small-cap REIT Dynex Capital (DX - Get Report), one of the top-yielding real estate stocks, has been getting a lot of attention lately, ranking as one of the most-searched stocks on TheStreet yesterday. A lot of that attention has come from DX's massive dividend payout -- shares currently yield 11.64%. But there's a technical story in this stock as well.

Dynex is currently forming an ascending triangle setup, a pattern that's formed by horizontal resistance and uptrending support. Essentially, the pattern works like this: as shares bounce in between those two technically significant price levels, they're getting squeezed closer and closer to a breakout above that resistance level. When that happens, traders have a buy signal on their hands.

>>10 Small-Cap Stocks Safe for Skittish Investors

The resistance level to watch in Dynex is $9.62, the price shares closed at in yesterday's session. To justify buying, it makes sense to wait for a confirmed breakout -- that means holding out until DX posts a second consecutive open above that price. Waiting for confirmation avoids the whipsaws that can be caused by large orders temporarily impacting prices, something that's a particularly big risk in small-caps.

If you do take this trade, I'd recommend keeping a protective stop just below the 50-day moving average.

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