5 Stocks Ready for Breakouts: Veracyte, Flextronics and More - TheStreet

DELAFIELD, Wis. (Stockpickr) -- 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.

Flextronics

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One technology stock that's starting to trend within range of triggering a near-term breakout trade is Flextronics (FLEX) - Get Report , which provides design, manufacturing and supply chain services to original equipment manufacturers worldwide. This stock has been moving to the upside over the last three months, with shares higher by 15%.

If you take a look at the chart for Flextronics, you'll see that this stock rocketed higher on Thursday right off its 50-day moving average of $10.99 with monster upside volume. Volume registered over 12 million shares, which is well above its three-month average action of 4.63 million shares. This move pushed shares of FLEX into breakout territory, since the stock took out some near-term overhead resistance levels at $11.10 to $11.17 a share. That bullish price action is now quickly pushing shares of FLEX within range of triggering a much bigger breakout trade.

Traders should now look for long-biased trades in FLEX if it manages to break out above some near-term overhead resistance levels at $11.35 to $11.39 a share and then above its 52-week high of $11.83 a share with high volume. Look for a sustained move or close above those levels with volume registers near or above its three-month average action of 4.63 million shares. If that breakout triggers soon, then FLEX will set up to possibly trend well north of $12 a share.

Traders can look to buy FLEX off weakness to anticipate that breakout and simply use a stop that sits right below its 50-day moving average of $10.99 a share or near its 200-day moving average of $10.55 a share. One can also buy FLEX 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.

Regulus Therapeutics

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A biopharmaceutical stock that's starting to move within range of triggering a big breakout trade is Regulus Therapeutics (RGLS) - Get Report , which focuses on the discovery and development of drugs that target microRNAs for the treatment of various diseases in the U.S. This stock has been on a tear to the upside over the six months, with shares soaring higher by 184%.

If you take a glance at the chart for Regulus Therapeutics, you'll see that this stock has been uptrending over the last month and change, with shares moving higher from its low of $14.28 to its recent high of $20.18 a share. During that uptrend, shares of RGLS have been making mostly higher lows and higher highs, which is bullish technical price action. Shares of RGLS spiked higher on Thursday right off its 50-day moving average of $17.11 a share. That spike is now quickly pushing shares of RGLS within range of triggering a big breakout trade above some key near-term overhead resistance levels.

Traders should now look for long-biased trades in RGLS if it manages to break out above some near-term overhead resistance levels at 19.66 to $20.18 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 1.10 million shares. If that breakout gets going soon, then RGLS will set up to re-test or possibly take out its next major overhead resistance level at its all-time high of $25.60 a share. Any high-volume move above that level will then give RGLS a chance to tag $30 a share.

Traders can look to buy RGLS off weakness to anticipate that breakout and simply use a stop that sits right around some key near-term support levels at $16.35 to $15.35 a share. One could also buy RGLS off strength once it starts to take out those breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.

xG Technology

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Another technology stock that's starting to spike within range of triggering a big breakout trade is xG Technology (XGTI) , which develops communications technologies for wireless networks worldwide. This stock has been under massive selling pressure over the last six months, with shares dropping sharply lower by 76%.

If you take a glance at the chart for xG Technology, you'll notice that this stock exploded higher on Thursday with massive upside volume after the stock broke below some key near-term support levels at 43 to 40 cents per share. This surge to the upside pushed shares of XGTI into breakout territory, since the stock cleared some key near-term overhead resistance at 50 cents per share. This strong move is now quickly pushing shares of XGTI within range off triggering another big breakout trade above some key near-term overhead resistance levels.

Traders should now look for long-biased trades in XGTI if it manages to break out above some key near-term overhead resistance levels at 60 to 64 cents per share with high volume. Watch for a sustained move or close above those levels with volume that registers near or above its three-month average action of 177,569 shares. If that breakout develops soon, then XGTI will set up to re-test or possibly take out its next major overhead resistance levels at its 50-day moving average of 87 cents per share, or even $1 a share.

Traders can look to buy XGTI off weakness to anticipate that breakout and simply use a stop that sits right around 40 cents per share. One can also buy XGTI off strength once it starts to trend above those breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.

Veracyte

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Another biotechnology stock that's starting to trend within range of triggering a near-term breakout trade is Veracyte (VCYT) - Get Report , which operates as a diagnostics company in the field of molecular cytology to enhance patient outcomes and lower health care costs. This stock has been hit by the sellers over the last six months, with shares moving sharply lower by 42%.

If you take a glance at the chart for Veracyte, you'll notice that this stock recently formed a double bottom chart pattern at $7.85 to $7.77 a share. That bottom has formed right above VCYT's 50-day moving average of $7.75 a share. Shares of VCYT are now starting to spike higher off those support levels and it's 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 VCYT if it manages to break out above some near-term overhead resistance levels at $8.60 to around $9 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 79,292 shares. If that breakout kicks off soon, then VCYT will set up to re-test or possibly take out its next major overhead resistance levels at $9.85 to $10.45 a share. Any high-volume move above those levels will then give VCYT a chance to re-test or possibly take out its next major overhead resistance level at its 200-day moving average of $11.27 a share.

Traders can look to buy VCYT off weakness to anticipate that breakout and simply use a stop that sits right below its 50-day moving average of $7.75 a share or near more support at $7.15 a share. One can also buy VCYT 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.

Energy XXI

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My final breakout trading prospect is energy player Energy XXI (EXXI) , which is engaged in the acquisition, exploration, development, production and operation of oil and natural gas properties onshore in Louisiana and Texas, and on the Gulf of Mexico. This stock has been destroyed by the bears over the last six months, with shares plunging lower by 86%.

If you look at the chart for Energy XXI, you'll notice that this stock recently formed a double bottom chart pattern at $2.35 to $2.30 a share. That bottom is trying to form after shares of EXXI collapsed over the last six months from over $22 a share to its new 52-week low of $2.30 a share. Following that potential bottom, shares of EXXI have started to spike higher and it's now quickly moving 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 EXXI if it manages to break out above some near-term overhead resistance levels at $3.20 to $3.53 a share and then above its 50-day moving average of $3.61 a share and over $3.68 to $3.82 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 7.44 million shares. If that breakout materializes soon, then EXXI will set up to re-test or possibly take out its next major overhead resistance level at just below $6 a share

Traders can look to buy EXXI off weakness to anticipate that breakout and simply use a stop that sits right below its new 52-week low of $2.30 a share. One can also buy EXXI off strength once it starts to clear those breakout levels with volume and then simply use a stop that sits a conformable percentage from your entry point.

-- Written by Roberto Pedone in Delafield, Wis.

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At the time of publication, author had a long position in TWTR call options. Roberto Pedone, based out of Delafield, Wis., is an independent trader who focuses on technical analysis for small- and large-cap stocks, options, futures, commodities and currencies. Roberto studied international business at the Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany. His work has appeared on financial outlets including CNBC.com and Forbes.com. You can follow Pedone on Twitter at www.twitter.com/zerosum24 or @zerosum24.