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5 Stocks Ready to Break Out

Stocks in this article: COCOCHTPMCPKEGMGMCYCC

Chelsea Therapeutics

Another stock that's setting up to hit a near-term breakout trade is Chelsea Therapeutics (CHTP), a specialty pharmaceutical company focused on the acquisition, development and commercialization of innovative pharmaceutical products. This stock has been hammered by the bears so far in 2012, with shares down a whopping 73%.

>>4 Health Care Stocks Under $10 Spiking Higher

If you take a look at the chart for Chelsea Therapeutics, you'll see that for the last two months, this stock has been trending sideways between $1.10 on the downside and $1.48 on the upside. As CHTP has trended sideways, the stock has found buying interest each time it's pulled back near its 50-day moving average. Shares of CHTP are now starting to push higher and move within range of triggering a near-term breakout trade.

Market players should now look for long-biased trades in CHTP once it manages to take out some near-term overhead resistance levels at $1.39 to $1.48, and then $1.54 a share with high volume. Look for a sustained move or close above those levels with volume that hits close to or above its three-month average action of 456,323 shares. If that breakout triggers soon, then CHTP will setup to re-test or possibly take out its next significant overhead resistance levels at $1.83 to $1.99 a share. Any high-volume move above those levels will then put $2.20 to $2.32 a share into focus.

One can look to buy CHTP off any weakness to anticipate that breakout, and simply use a stop that sits right below its 50-day moving average of $1.17 a share. One could also buy off strength once CHTP clears those near-term breakout levels with volume, and then use a stop just below $1.30 a share. I would add to either position aggressively if CHTP takes out $2.20 to $2.32 a share with volume.

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