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5 Stocks Setting Up to Break Out

Demand Media

Another stock in the computer services complex that's moving very close to a breakout trade is Demand Media (DMD), which is focused on an Internet-based model for the professional creation of content at scale. This stock is off to a bullish start in 2012 with shares up over 35%.

If you look at the chart for Demand Media, you'll notice that this stock has been uptrending strong for the past couple of months, with shares surging from a low of $5.85 to a recent high of $9.69 a share. During the month of May, shares of Demand Media have seen some monster upside volume days as the stock has trended between $9 and $9.69 a share. This action has now pushed Demand Media within range of triggering a major breakout trade.

>>5 Stocks Under $10 Poised for Breakouts

Market players should now look for long-biased traders in DMD if this stock can manage to trigger a break out above some near-term overhead resistance at $9.69 a share with high-volume. Look for a sustained move or close above $9.69 with volume that registers near or well above its three-month average action of 394,755 shares. If we get that action soon, then DMD has some solid upside potential since its next significant overhead resistance levels are at $10.75 to $12-$13 a share.

I would look to play this breakout off of strength here since buying into weakness would have me waiting for a significant pullback towards $8 or around its 50-day moving average of $7.56 a share. I would look to play DMD once it takes out $9.69 with big volume and simply use a stop just that's a few percentage points below that level if the breakout hits soon.
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