By Roberto Pedone
WINDERMERE, Florida (
) -- Stock traders are starting to get frustrated with the action in the markets. For the past 11 trading sessions, the
has been stuck in a trading range between 1150 on the upside and 1130 on the downside. While this action might be frustrating for many, it can also be viewed as a healthy consolidation before the next leg higher.
Of course, the bears would tell you this action is toppy and stocks are being distributed before the rug is pulled out from underneath the market bulls. That could very well be at play here, which is way it's always important to let the price action in the market provide you with clues to the next move.
Now, if the S&P can manage to breakout above 1150 on strong volume, then stocks should setup to soar towards the yearly highs at around 1220. However, if we break below 1130 and volume starts to expand dramatically, then stocks are probably going back towards 1040, if not even lower. I think the market is going to make a massive move, no matter which way it decides to break, due to the energy that has been built up in the markets in the past couple of months as seen by the wild swings in stock prices. Also, investor sentiment has been swinging wildly from bullish to bearish and vice versa.
This is usually a recipe for a giant move because it means that market players have a lot of conviction about their direction trades on both sides. Think of it as a battle field where the longs and shorts are bunkering down and preparing for war. At some point, one group is going to get trapped and caught on the wrong side. This will be where the big energy comes from to produce a gigantic move.
Trading breakouts is not a new game on Wall Street. This strategy has been pioneered by legendary traders such as William O'Neal, Stan Weinstein and Nicolas Darvas. A breakout occurs when a stock makes a move through a significant level of support or resistance, which is usually followed by heavy volume and increased volatility. Wall Street players love to see an upside breakout because it demonstrates strength in the underlying asset as the price breaks above a level of previous resistance. An upside breakout can also take a stock to new highs, which will generate a lot of interest as the stock shows up on sophisticated software that scans for this type of action.
Here 's a look at a number of stocks that are already breaking out, or could be setting up to become solid
The first stock hitting the breakout radar is
Sirius XM Radio
. This company is engaged in broadcasting its music, sports, news, talk, entertainment, traffic and weather channels in the U.S. for a subscription fee through its satellite radio systems, the Sirius system and the XM system.
This stock just ripped ridiculously higher in September, with shares trading up over 23%. It's not hard to understand why the stock has been on such a huge run when you consider some of the news that has hit the tape on Sirius XM recently.
On last Thursday, Standard and Poor's said it had put Sirius XM on credit watch for a possible debt upgrade if their operating performance continues to improve. Last Friday, the company announced that it will hit an all-time high in subscribers of 20.1 million by the end of the year.
All of this bullish fundamental news is clearly creating some momentum in the stock that could continue for some time. What's even better for the Sirius bulls is that the technicals are also starting to line up with the positive fundamentals.
Looking at the chart for Sirius, you can see that the stock has started to breakout above some previous overhead resistance at around $1.25 a share. This breakout is coming on heavy volume, with the last two trading sessions clocking in up day action of 122 million and 95 million shares versus the 3-month average daily volume of 71 million.
Keep in mind that over 5% of the tradable float of 3.7 billion shares is currently sold short as of Sept. 15. If the
out of their positions, then the stock can easily head back toward its 2007 highs of $4 a share.
Next on the breakout list is video game maker
( ERTS). This stock hasn't been all that exciting so far in 2010, with shares down around 4.45%. However, the buzz is starting to get loud for a number of the company's games that are coming to market, or have just recently launched, including
Medal of Honor
Need for Speed
One big sports game that just hit the market is soccer game
. Just today, Electronic Arts announced that FIFA 11 is the fastest-selling sports game ever, and the title is off to the best start ever in markets all over the globe, such as the United Kingdom, France, Germany, Italy, Spain and North America.
This news is helping to push the stock higher and into breakout territory as shares clear some overhead resistance at around $17.50 a share. If you take a look at the chart, you'll see that this move is also coming on strong volume. If this buying momentum continues for Electronic Arts, the stock should easily print $20 a share in short order.
Another stock that has started breakout is
( GEOY), a provider of earth imagery, image processing services and imagery information products to the U.S. and foreign government defense and intelligence organizations, domestic federal and foreign civil agencies, and commercial customers.
This company has a lot of things going for it, from strong demand from the military and news organizations to rising demand from online clients that use their satellite imagery for mapping products. Just recently, the company won a combined 10-year deal with
valued at $7.35 billion from the National Geospatial-Intelligence Agency.
Once again, we have a situation where strong fundamentals are being supported be a very bright technical picture.
Looking at the chart, you'll see that shares of GeoEye have recently broke out above some previous resistance at around $40 to $40.50 a share on very strong volume. Volume during the last four trading sessions (all up days) clocked in at over 250,000 shares, which is well above the three-month average daily volume of 216,000 shares.
This breakout for GeoEye is very significant because the stock is now trading at brand new all-time highs. This means that pretty much anyone who has ever bought the stock is making money. It also means that anyone who has ever shorted it is losing money. And right now more than 4% of the tradable float of 19 million shares is sold short as of Sept. 15. I expect that GeoEye will see much higher prices in the future, as long as the stock holds above the 50-day moving average of $37.46.
One final stock that looks poised for breakout action is
Casual Male Retail Group
( CMRG). This company is a specialty retailer of big-and-tall men's apparel with retail operations in the U.S. and England and direct businesses throughout the U.S., Canada and Europe.
Recently, the company received some favorable fundamental news after
said it would soon sell Casual Male Retail Group's big-and-tall men's clothing. Bon-Ton said it will sell the merchandise at its stores and online starting next spring. Bon-Ton operates 277 stores in 23 states, so this is a nice distribution channel for Casual Male.
If you take a look at the chart, you'll see that Casual Male Retail Group is on the cusp of breaking out above some previous overhead resistance at around $4.30 to $4.50 a share. A move above those levels would mark a two-year high for the stock. Volume is looking strong as the stock makes its breakout attempt, with over 680,000 shares trading to the upside yesterday vs. the three-month average daily volume of 167,000 shares.
The next area of major resistance for Casual Male is around $6.60 a share. It's worth noting that over 7.7% of the tradable float of 32 million shares is sold short as of Sept. 15. This is a recipe for a big
that could easily push the stock towards $6.60 or even higher.
To see more breakout action in stocks such as
( AMLN), check out the
portfolio on Stockpickr.
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At the time of publication, author had no positions in stocks mentioned.
Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.
Stockpickr is a wholly owned subsidiary of TheStreet.com.