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5 Stocks to Trade for Breakout Gains

Polo Ralph Lauren

That brings us to another apparel stock that's getting attention from Twitter this morning, Polo Ralph Lauren (RL - Get Report). Back in February, positive earnings prompted RL to gap up dramatically - dramatically enough that shares have been stuck trading in a sideways consolidation channel ever since as traders weighed their next move in RL. But there's a trade to be made in that sideways price action.

Because of that trading range, RL is forming an if/then trade right now, a setup whose ultimate direction is dependent on which way RL exits its channel. Put more simply, if RL breaks out above $180 resistance, then traders have a buy signal. Otherwise, if shares of RL fall down below $170 support, then it becomes a short candidate.

Momentum, as measured by 14-day RSI, is pretty neutral right now, which only means that RL really isn't tipping its hand to us right now; typically, secondary indicators like momentum give some hint at which direction market participants are favoring. Waiting for the break to happen before taking a position in critical. After that, I'd recommend keeping a protective stop just on the other side of the 50-day moving average regardless of which way it happens.

Ralph Lauren, one of SAC Capital's holdings, shows up on a list of 8 Stocks Rising Fast on Rich People's Spending.
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