WINDERMERE, Fla. (Stockpickr) -- U.S. stocks are trading slightly lower Friday as market players digest gains from the previous trading session's monster rally.
At last check, the
Dow Jones Industrial Average
was up by 8 points while the
was off by 4 points. The tech-heavy
was trading down 8 points as Wall Street continues to move through the heart of earning season.
Despite the lack of movement in the broad indices today, there are many stocks making monster moves higher. For example,
(STMP) is soaring by over 24% after the company reported strong earnings on Thursday after the market close. I highlighted STMP on Wednesday as an
, and the trading breakout plan I outlined worked out perfectly. I am mentioning this to demonstrate the power of
and how it can lead to huge profits when done right.
The top traders in the world know that markets are made up of thousands of stocks in different sectors. With so many moving parts, there's always some sector or stock that's acting strong and setting up to breakout. Trading breakouts is not a new game on Wall Street. This strategy has been by legendary traders such as William O'Neal, Stan Weinstein and Nicolas Darvas.
Here's a look at a number of
One stock that's setting up to break out is
, which, together with its subsidiaries, designs, manufactures, and distributes protective coverings, audio accessories and power solutions for consumer electronics and handheld devices. This stock has turned out to be a big winner in 2011, with shares up over 76%.
If you take a look at the chart for Zagg, you'll notice that this stock formed a triple top back in July and August at around $17 a share. After putting in that top, the stock crashed and printed a low of $9 a share in October. The stock has now started to see some big buying interest since shares rebounded to the current price of just under $14 a share. What's more important is that Zagg is now starting to break out above some past overhead resistance at $13.50 to $13.65 a share.
Market players should watch for a sustained move and close above $13.65 to trigger that this stock is setting up to spike significantly higher. Look for volume in the coming days that registers close to or above its three-month average action of 1.25 million shares. So far today, the volume is only around 300,000 shares, so it's tracking in light. That said, volume yesterday was 1.36 million as the stock closed up, which was strong. Make sure to watch how volume comes in at the end of today.
You could be a buyer of this stock off any weakness and simply place a mental stop a few percentage points below $13.50 a share. If this breakout is the real deal, then target a run back toward $15.50 a share or much higher. I would add to any long position once the stock takes out $15.50 with volume, and then target a run back towards $17.
The short-sellers seem to love this stock since over 52% of the tradable float is currently sold short. The bears have also been increasing their bets from the last reporting period by 2%, or by about 193,440 shares. Nothing will scare a bear worse than being short a stock that's breaking out, so keep this name on your trading radar.
E Commerce China Dangdang
Another stock that has already started to trigger a big breakout is
E Commerce China Dangdang
, a business-to-consumer, e-commerce company in the People's Republic of China. The sellers have been very successful in knocking this stock down this year, and shares are off by over 70%.
If you take a look at the chart for E Commerce China Dangdang, you'll notice that the short-sellers have done a number on this stock, since it has plunged from its July high of $14.88 to a recent low of $4.50 a share. Since hitting that low, the stock has rebounded sharply to its current price of around $7 a share. Shares of Dangdang have also just started to move back above its 50-day
of $6.34 a share. Even more important, the stock has just today started to take out some big overhead resistance at around $6.50 a share.
Market players should now watch for this stock to trade and close above $6.50 a share today with strong volume. Look for volume to finish the day near or well above its three-month average action of 2.4 million shares. If we get some decent volume, and the stock closes strong, then this stock should set up to make a run back toward $8 a share or much higher.
One could be a buyer of this stock off any weakness and simply use a mental stop just below the 50-day moving average in case the breakout fails. Keep in mind that volume on Thursday was 2.9 million shares as the stock traded up. Look for strength and volume in the stock to continue to signal that much big spike is coming for DANG in the coming days or weeks.
This stock has an enormous short interest, with over 45% of the tradable float currently sold short by the bears. Look for the short-sellers to start covering fast if the stock really starts to launch into orbit off current levels.
One large-cap computer hardware breakout play that traders should put on their radar is iPhone and iPad maker
, which has been trending higher so far in 2011, with shares up over 25%.
If you take a look at the chart for Apple, you'll notice that this stock gapped down big off its latest earnings report from over $420 to under $400 a share. After that gap down, the stock touched its 50-day moving average of $391.27 a share and has now rallied back to its current price of around $404 a share. Market players should now watch Apple for a breakout trade if the stock can manage to take out $410 a share. A move above that level should set this stock off for a big run back toward those previous highs near $420 or above.
You could be a buyer of this stock off any noticeable weakness and anticipate the breakout, or you could just buy off strength once the breakout triggers. If you buy of weakness, simply place a stop just below the 50-day moving average, or much tighter if you're intraday trading it. If you buy off strength, get long once $410 is taken out and prepare to see that big gap down start to get filled.
If $410 is taken out, look for a high volume move to confirm that the stock is ready to take off. I would look for volume that's tracking in close to or above its three-month average action of 22.9 million shares. A great way to play this stock if it does break out would be to buy some near-the-money call options for a quick trade.
Apple shows up on a recent list of
One stock in the restaurant complex that has started to break out is
( CBOU). This company is engaged in operating coffeehouse in the U.S. The stock is off to a hot start in 2011, with shares up by over 35%.
If you look at the chart for Caribou Coffee, you'll notice that this stock was hammered by the sellers from its August high of $17.40 to a recent low of $10.32 a share. Since marking that low, the stock has spiked big and now trades at just over $14 a share. What's even more noteworthy is that now the stock is starting to break out above some past overhead resistance at around $13.50 and above its 50-day moving average of $13.32 a share. This should easily set the stock up to make a run at its next significant resistance level of $15 a share, or possibly much higher.
If you're bullish on this stock, you could simply get long on off any noticeable weakness. I would place a stop just below $13.50 a share in case this breakout fails. I would add to this position only if the stock takes out $15 a share with
. Look for volume that's tracking in close to or above its three-month average action of 672,400 shares.
This stock has a decent short interest -- around 6% of the tradable float is currently sold short by the bears. Caribou only has 18.35 million shares in its float, so this breakout could easily spark a massive short squeeze in the coming days or weeks. Keep this name on your trading radar.
Caribou is one of TheStreet Ratings'
One final stock that looks ready to trigger a monster breakout is mobile games maker
. This is another stock that's off to fast start in 2011, with shares up over 50%.
If you look at the chart for Glu Mobile, you'll notice this stock has been crushed lower by the bears from its July high of $6.10 a share to a recent low of $1.80 a share. After printing that low, the stock has rebounded sharply to its current price of just over $3.15 a share. The stock has now also started to trigger a big breakout, with shares moving over some past overhead
at around $3.12 a share.
The only thing that's lacking here for the breakout in GLUU is big volume. That said, the volume could start to come in during the coming weeks or days, so keep an eye on that action.
If you're bullish on GLUU, One could simply be a buyer of this stock off any weakness and simply use a mental stop at around $3 a share. I would look for upside volume in the coming days that starts to track in well above its three-month average action of 2.08 million shares. I would look to add aggressively to any long position once GLUU takes out $3.45 and then its 200-day moving average of $3.81.
It's worth pointing out that the current short interest as a percentage of the float for GLUU is a rather large 12.8%. That high short interest could easily fuel a move above $4.50 to $5 a share if the bears start to get nervous and cover some of their bets.
To see more breakout candidates, including
(TZOO), check out the
portfolio on Stockpickr.
-- Written by Roberto Pedone in Winderemere, Fla.
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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.