The Art of the Breakout

No matter what kind of trader you are, you probably like breakouts. Here are a couple of them.
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There are loads of disagreements in this business. Consider just the following:

Analysis:

Fundamental or Technical?

Market Rally:

Durable or Ephemeral?

Bigger Casino:

Nasdaq

or the

Bellagio

?

Pastrami:

2nd Avenue

or

Katz's Deli

?

But the one thing everyone agrees on is that investors want to buy a stock before it has broken out. How do I know this? Because whenever I call or make a visit to a client/potential client to discuss a stock(s) that has broken out already, he or she inevitably says, "Where were you yesterday?" or "Why didn't you call me before it broke out?"

Me? I'm a breakout guy. And, as the action this year has confirmed, breakouts work. So, I'm not against buying a stock that's up a lot because more than likely, it will keep working higher. Today, I want to focus on two stocks that are just breaking out and completing bases.

Scitex

(SCIX) - Get Report

: Scitex is completing a base in force since August 1996, a time when it has traded in a wide-ranging base between 5 3/4 and 15. The breakout, on Friday, Dec. 10, 1999, suggests a target of 25. (OK, so I'm fudging -- it really suggests a target of 24 1/4.)

While Scitex is up sharply on a daily basis (I know, I know where the heck was I at 11 in October or at 13 three weeks ago?), the stock is completing an important base more than three years in length -- and this suggests much higher targets.

The things that drew me to Scitex include:

The completion of the big base;

Upward-sloping 50-day and 200-day moving averages, confirming positive intermediate and longer-term momentum;

The 10-day moving average of volume over the last month has doubled, and volume over the last two days is more than 80% greater than the current 10-day average;

Other stocks in the same group are smokin'.

USA Networks

(USAI) - Get Report

: USA Networks completed a more than four-month base, in force since late July, during which it traded between 34 3/8 and 48 5/8. The breakout, on Friday, Dec. 10, 1999, suggests a target of 62. (I'm fudging again -- the on-the-dime target is 62 7/8.)

Unlike Scitex, which is up sharply of late but has been an underperformer since 1996, USA Networks was a standout from September 1997 all the way through late July, when it ran out of steam.

The favorable technicals for USA Networks include:

The completion of a base;

Upward-sloping 50-day and 200-day moving averages confirming positive intermediate and longer-term momentum;

Volume, while not spectacular, is solid;

The group is smokin'.

John Roque is the technical analyst at Arnhold & S. Bleichroeder, a New York-based investment brokerage firm specialing in Europe and the U.S., and a frequent guest on CNBC. At time of publication, Roque had no position in any of the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Roque appreciates your feedback at

jroque@thestreet.com.