WINDERMERE, Fla. (Stockpickr) -- A market like the one we're in right now can offer great opportunities to find breakout stocks, to the upside and downside. Because market has started to trend lower, you can easily isolate the strong stocks, or the ones that are breaking out to the upside. You can also easily find the weakest stocks in the market that are setting up to break their support level and head much lower. These weak stocks are usually trending with the market and will simply follow the broad market indexes lower.

A breakout is 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 upside breakouts because it demonstrates strength in the underlying asset as the price breaks above a level of previous resistance.

They especially love to see this action in a weak market like we have right now because it sticks out like a sore thumb in a red tape. An upside breakout can also take a stock to a new high that 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 could be setting up to become great breakout candidates.

A breakout below a support level is usually seen as a warning sign for a security. This is simply because when a stock breaks support that has held up for a significant amount of time, it could mean that large institutions are getting rid of their shares.Another way to play the breakout chart pattern is to look for stocks that fail to trade above previous resistance, which often leads to significant selloffs. This pattern is known as the failed breakout.
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A great example of this recently can be seen in Vivus ( VVUS - Get Report), a biopharmaceutical company focused on the development and commercialization of therapeutic products for underserved markets. Last week, the stock was trading higher as investors placed their bets ahead of the company's FDA advisory panel hearing over its weight loss drug Onexa. Many investors were bullish on the prospects for the company to see a favorable ruling from the panel.

The stock, however, was flashing some warning signs, with shares unable to trade above the May high of $13.68 before the hearing. Subsequently, the company received the worst news possible after the FDA panel voted 10-6 against the approval of Onexa. This news sent the stock crashing by more than 57% all the way down to $5.40 a share. This example clearly demonstrates why breakouts above resistance or below support are extremely important to pay attention to.
Who Owns Vivus?

Let's take a look at a few stocks that could be setting up to form breakout chart patterns.

First up is MasterCard ( MA - Get Report), a payment solutions company that provides a variety of services in support of the credit, debit and related payment program of its customers. Shares of MasterCard are approaching some critical support at around $195 to $194 a share. This area has marked significant support for the stock three times in the last two months. A breakout below this level would be very bearish since the last three times it has reached this area the stock has rallied sharply.

If this breakout to the downside on MasterCard occurs, it could send the stock all the way down to the next area of support at around $155. That's almost 40 points of downside, so if you're long this stock, pay attention to how it acts here. Also, keep in mind that the selling volume has started to outpace the buying volume in the last few trading sessions. This could be an early warning sign that a breakout below support is now in the cards.

On the flipside, if the stock can manage to hold this level, it could see a fourth rally materialize. Shares of MasterCard are now trading below both the 50-day and 200-day moving averages. This is considered a bearish technical indicator, and the stock shouldn't return to a more bullish stance until it can get above the 50-day at $208.91.
Who Owns MasterCard?

Another stock market players should put on their radar for a breakout candidate is Halliburton ( HAL - Get Report). This company provides a variety of services and products to customers in the energy industry related to the exploration, development and production of oil and natural gas. On Monday, Halliburton reported an 83% surge in second-quarter profits driven by stronger revenue. This strong result happened despite the problems in the Gulf of Mexico, where the company did the cement work on the blown-out well controlled by BP ( BP).

Shares of Halliburton soared over 6% on its earnings news on very heavy volume of 39 million shares, which outpaced the average daily volume of 25 million shares. The stock also broke above the 200-day moving average of $29.36 off the strong results. It now looks like Halliburton has a clear path toward the next area of major resistance at $35 a share. A move about $35 for the stock would mark a significant breakout, since Halliburton hasn't traded above that level since late 2008.
Who Owns Halliburton?

Shares of Altria Group ( MO - Get Report), a holding company engaged in the manufacture and sale of cigarettes and certain smokeless products in the U.S., also look poised for a breakout. What's significant about the trading action in Altria Group is that as the market has dropped almost 5% since June 21, shares of Altria have risen 6.2%. This shows that Altria has a lot of relative strength and is bucking the overall market downtrend.

Right now the stock is trading right around some near-term resistance at $22. Market players should watch for the stock to break out above that level. A move over $22 could send the stock back toward the all-time high of around $25 a share. Keep in mind that Altria will report second-quarter results before the stock market opens on Thursday. Ideally, I would like to see the stock break out above $22 before the report.
Who Owns Altria?

One last stock that could be a breakout candidate is Polaris Industries ( PII - Get Report), which designs, engineers and manufactures all-terrain vehicles, snowmobiles and motorcycles. Just today, the company reported that second-quarter profits soared 47% as sales of all-terrain vehicles rebounded sharply, helping to boost its profits and sales expectations for the rest of the year. This bullish news now has the shares closing in on some previous resistance at around $63 to $65 a share on heavy volume.

If Polaris can manage to trade above those levels, it would mark brand new four-year highs and would set the stock up to challenge all-time highs at around $73 a share. You can see that just a breakout above $65 could yield an investor 8 points if the stock can run back to all-time highs. Keep in mind that if the stock fails to break out above $65, then you know that sellers control the stock at those levels.

To see more breakout action in stocks such as Johnson & Johnson ( JNJ) and SBA Communications ( SBAC), check out the Breakout Stocks of the Week portfolio on Stockpickr.

-- Written by Roberto Pedone in Winderemere, Fla.


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