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5 Stocks Setting Up to Break Out

Stocks in this article: SHLDPDMDEGHTVZFB

8x8

One stock in the communications services complex that looks ready to trigger a big breakout trade is 8x8 (EGHT), which develops and markets telecommunications services for Internet protocol, telephony and video applications, as well as Web-based conferencing and unified communications services, managed hosting and cloud-based computing services. This stock is off to a decent start in 2012, with shares up over 25%.

If you look at the chart for 8x8, you'll notice that this stock has been trading range bound for the past few months, between $3.76 and $4.33 a share. This range for 8x8 has created a base for the stock since buyers have consistently supported the price whenever it's pulled back under $4 toward $3.80 a share. On Thursday, shares of 8x8 soared back above both its 50-day and 200-day moving averages with heavy volume. Volume clocked in at 1.64 million shares which are well above its three-month average volume of 569,934 shares. That bullish action has now pushed 8x8 with range of triggering a major breakout trade.

>>5 Tech Stocks to Buy Instead of Facebook

Traders should now look for long-biased trades if EGHT can manage to take out some near-term overhead resistance at $4.20 to $4.33 a share with high volume. Look for a sustained move or close above those levels with volume that's near or well above its three-month average action of 569,934 shares. If we get that action soon, then look for EGHT to easily hit its March high of $4.73 a share, or possibly even move above $5 a share.

I would simply use a stop on EGHT right below $3.76, or even right below its 200-day moving average of $4.00 if you buy this stock off of weakness and anticipate the breakout. I would add to any long positions in EGHT if spikes higher and takes out some past overhead resistance at $4.95 with volume. A move over $4.95 will put its next significant overhead resistance level of $5.44 within range.

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