5 Stocks Ready for Breakouts
Trading stocks that trigger major breakouts can lead to massive profits. Once a stock trends to a new high or takes out a prior overhead resistance point, then it's free to find new buyers and momentum players who can ultimately push the stock significantly higher.
Breakout candidates are something that I tweet about on a daily basis. I frequently tweet out high-probability setups, breakout plays and stocks that are acting technically bullish. These are the stocks that often go on to make monster moves to the upside. What's great about breakout trading is that you focus on trend, price and volume. You don't have to concern yourself with anything else. The charts do all the talking.
Trading breakouts is not a new game on Wall Street. This strategy has been mastered by legendary traders such as William O'Neal, Stan Weinstein and Nicolas Darvas. These pros know that once a stock starts to break out above past resistance levels and hold above those breakout prices, then it can easily trend significantly higher.
With that in mind, here's a look at five stocks that are setting up to break out and possibly trade higher from current levels.
Digimarc
One technology player that's starting to trend within range of triggering a big breakout trade is Digimarc (DMRC) - Get Report , which provides media identification and management solutions to commercial entities and government customers in the U.S. and internationally. This stock has been smacked lower by the sellers over the last three months, with shares off sharply by 27.2%.
If you take a look at the chart for Digimarc, you'll notice that this stock has been uptrending over the last few weeks, with shares moving higher off its low of $21.80 to its recent high of $26.97 a share. During that uptrend, shares of Digimarc have been consistently making higher lows and higher highs, which is bullish technical price action. This short-term uptrend is coming after a steep drop in the share price for Digimarc, that saw the stock plunge off its October high of $38.75 to that $21.80 low. This stock is now quickly moving within range of triggering a near-term breakout trade above some key overhead resistance levels.
Traders should now look for long-biased trades in Digimarc if it manages to break out above some near-term overhead resistance levels at $26.97 to $27 a share with high volume. Look for a sustained move or close above those levels with volume that registers near or above its three-month average action of 130,575 shares. If that breakout jumps off soon, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at its 20-day moving average of $29.97 to its 200-day moving average of $30.86, or even its 50-day moving average of $32.97 a share.
Traders can look to buy Digimarc off weakness to anticipate that breakout and simply use a stop that sits right around some key near-term support levels at $24.65 or $23.74 a share. One can also buy this stock off strength once it starts to bust above those breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.
Iconix Brand Group
A brand management player that's starting to trend within range of triggering a major breakout trade is Iconix Brand Group (ICON) - Get Report , which owns, licenses and markets a portfolio of consumer brands across women's, men's, entertainment and home primarily in the U.S. and internationally. This stock has been destroyed by the bears over the last six months, with shares collapsing lower by a whopping 73.9%.
If you take a glance at the chart for Iconix Brand Group, you'll notice that this stock recently gapped-down sharply lower from over $16 a share to its new 52-week low of $6.60 a share with massive downside volume flows. Following that move, shares of Iconix Brand Group have started to stabilize a bit, with the stock trending in a tight range between $6.65 on the downside and $7.43 on the upside. Shares of Iconix Brand Group managed to trend modestly higher on Thursday in an extremely weak tape, and this stock is now starting to move within range of triggering a major breakout trade.
Traders should now look for long-biased trades in Iconix Brand Group if it manages to break out above some key near-term overhead resistance levels at Thursday's intraday high of $7.15 a share to more resistance at $7.43 a share and then above its gap-down-day high of $8.70 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 1.86 million shares. If that breakout fires off soon, then this stock will set up to re-fill some of its previous gap-down-day zone that started just above $16 a share.
Traders can look to buy Iconix Brand Group off weakness to anticipate that breakout and simply use a stop that sits right around its new 52-week low of $6.60 a share. One could also buy this stock off strength once it starts to move above those breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.
Portola Pharmaceuticals
A biopharmaceutical player that's quickly moving within range of triggering a big breakout trade is Portola Pharmaceuticals (PTLA) - Get Report , which develops and commercializes therapeutics for patients in the areas of thrombosis, other hematologic disorders and inflammation. This stock has been raging higher over the last six months, with shares up sharply by 30.4%.
If you take a glance at the chart for Portola Pharmaceuticals, you'll notice that this stock trended notably higher on Thursday right off its 50-day moving average of $47.27 a share and back above its 20-day moving average of $48.38 a share with above-average volume. Volume on the day finished right around 530,000 shares, which is a bit above its three-month average action of 473,880 shares. This high-volume spike to the upside is now quickly pushing shares of Portola Pharmaceuticals within range of triggering a big breakout trade above a key downtrend line that dates back to September.
Traders should now look for long-biased trades in Portola Pharmaceuticals if it manages to break out above that downtrend line which will trigger over some key resistance levels at $50.29 to $52 a share and then above more resistance at $52.07 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 473,880 shares. If that breakout gets started soon, then this stock will set up to re-test or possibly take out its next major overhead resistance level at its all-time high of $57.96 a share.
Traders can look to buy Portola Pharmaceuticals off weakness to anticipate that breakout and simply use a stop that sits right around some key near-term support levels at $46.50 to $46 a share. One can also buy this stock off strength once it starts to clear those breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.
Model N
Another application software player that's starting to move within range of triggering a major breakout trade is Model N (MODN) - Get Report , which provides revenue management solutions for the life science and technology industries. This stock is down modestly over the last six months, with shares off by just 8.8%.
If you take a glance at the chart for Model N, you'll see that this stock has been attempting to carve out a major bottoming chart pattern over the last three months, with shares finding buying interest multiple times at around $9.80 to $9.75 a share. Shares of Model N trended notably higher on Thursday back above both its 50-day moving average of $10.19 a share and its 20-day moving average of $10.22 a share with strong upside volume flows. Volume for the day registered over 300,000 shares, which is well above its three-month average action 82,685 a shares. This high-volume spike to the upside is now starting to push shares of Model N within range of triggering a major breakout trade above some key near-term overhead resistance levels.
Traders should now look for long-biased trades in Model N if it manages to break out above some key near-term overhead resistance levels at $10.40 to $10.60 a share and then above more resistance at $10.75 a share with high volume. Look for a sustained move or close above those levels with volume that registers near or above its three-month average action of 82,685 shares. If that breakout takes hold soon, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at its 200-day moving average of $11.25 to $12, or even $12.50 to its 52-week high of $12.70 a share.
Traders can look to buy Model N off weakness to anticipate that breakout and simply use a stop that sits right below $10 a share or around those recent major bottom support levels. One can also buy this stock off strength once it starts take out those breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.
Encana
My final breakout trading prospect is energy player Encana (ECA) - Get Report , which engages in the development, exploration, production and marketing of natural gas, oil and natural gas liquids in Canada and the U.S. This stock has been under heavy selling pressure over the last six months, with shares off sharply by 45.1%.
If you look at the chart for Encana, you'll notice that this stock has been making mostly higher lows over the last three months, which demonstrates that buyers are paying up to own the stock each time it has a significant pullback. Shares of Encana trended notably higher on Thursday right into its 50-day moving average of $7.60 a share with strong upside volume flows. Volume for the day registered over 18.9 million shares, which is well above its three-month average action of 11.37 million shares. This high-volume spike to the upside is now starting to push this stock within range of triggering a big breakout trade above a key downtrend line that dates back to the start of October.
Traders should now look for long-biased trades in Encana if it manages to break out above that downtrend line which will trigger over its 20-day moving average of $7.91 a share to more key resistance levels at $8.20 to $8.30 a share with high volume. Look for a sustained move or close above those levels with volume that registers near or above its three-month average action of 11.37 million shares. If that breakout triggers soon, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $8.63 to $8.96, or even $9.23 to $10 a share.
Traders can look to buy shares of Encana off weakness to anticipate that breakout and simply use a stop that sits right around some key near-term support at $7 a share. One can also buy this stock off strength once it starts to bust above those breakout levels with volume and then simply use a stop that sits a conformable percentage from your entry point.
Disclosure: This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.