By Roberto Pedone

WINDERMERE, Florida ( Stockpickr) -- Market-players across the globe are closely watching the U.S. bond and stock markets to see which asset class is going to break out first in the near future. The S&P 500 has been trading range-bound since May between the levels of 1040 and 1130. Market bulls are hoping for a breakout above 1130 to signal that the bull market in stocks is back. A breakout in stocks would almost certainly lead to more money flowing out of bonds.

As for the bond market, if you take a look at the iShares Barclays 20+ Year Treasury Bond Fund ( TLT - Get Report) you will see that a breakout won't occur until this ETF trades above $109 a share. With the TLT currently trading at around $105, you can see that a breakout for bonds isn't far off. If bonds continue to see strength and even break out, it will mean the risk trade in equities will be taken off and stocks will most likely trade lower.

These same savvy market players are also watching the action in silver and gold, which are both approaching new record highs and fresh breakouts. If either of these asset classes breaks out, it could mean the fear trade and flight to hard assets trade is back on.

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 breakout stock plays

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One stock that has recently broken out to new record highs is Yum! Brands ( YUM - Get Report), a quick service restaurant with over approximately 37,000 units in more than 110 counties and territories. Its popular restaurants include KFC, Pizza Hut, Taco Bells and Long John Silver. Yum! Brands is benefiting nicely from the company's big push into China and other emerging markets, such as Brazil. The stock is also working great as an economic slowdown play since prices at most of its popular fast food restaurants are viewed as affordable.

Just this morning, shares of Yum! Brands broke out to brand new all-time highs after the stock was able continue its uptrend from Friday, where shares moved above some previous resistance at around $44 a share. The last three trading sessions (all up days) saw volume of 4.4 million, 5.3 million and 8.7 million, which is well above the average three-month daily volume of 4.3 million shares.

With the stock now trading at record highs, I would look for this stock to continue to outperform, considering how strong it is acting in a range bound market.

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Another stock that looks ready to breakout is Rovi Corporation ( ROVI). This company provides digital entertainment technology solutions for the delivery and management of entertainment content. Basically, Rovi's products help consumers find and then connect to TV shows, movies and music on any capable device they own. The company also creates electronic program listings for cable TV companies and other carriers.

On July 29, Rovi reported second-quarter revenues of $134.8 million, versus $119.5 million for the second-quarter a year earlier. Given the strength of these results, the company raised its estimates for annual income per share to a range of $1.90 to $2.10.

The strong fundamental backdrop for Rovi is leading to a very strong technical situation for the stock. Since August, the stock has been trading in a channel chart pattern from $41 to $45 a share. Market players are now going to want to watch how the stock acts as it approaches the upper end of that channel pattern. Often times when a stock moves either way outside of its channel pattern it is a precursor to a very large move.

If Rovi can breakout above $45, it would then be trading in record-high territory with no more overhead resistance to keep the share price act bay. So an upside breakout could be a very big deal for Rovi.

Market players should keep an eye on DirecTV Group ( DTV) for a possible breakout play. This company is a provider of digital television entertainment in the U.S. and Latin America. This stock is a pure play on the return of the NFL football season, due to the company's NFL Sunday Ticket package, which allows subscribers to view any NFL game.

DirecTV just announced that it plans to make its NFL package available to non-subscribers starting on Sept. 12. This new package will only be available for customers who cannot install satellite dishes or get satellite reception, and it will cost $350.

Looking at the chart, you can see that shares of DirecTV have been range-bound in channel chart pattern between around $40 on the upside and around $33 on the lower end. This channel chart pattern has been in place since April, and shares look ready to potentially break out above the upper end of the channel and possibly clear the key $40 level.

If the stock can manage to break out above $40, it would mark a brand new record high, and the stock would have no overhead resistance left to pressure it lower. That would also mean that everyone who has pretty much ever bought the stock is making money. That is great company to be in as a shareholder.
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One final stock that could be setting up to see some breakout action is Herley Industries ( HRLY), which supplies microwave products and systems to defense and aerospace entities worldwide.

Recently, Shares of Herley have managed to trade above some previous overhead resistance at around $16 to $16.30 a share. These resistance levels are very significant because they have held the stock back a number of times over the last three years. Plus, almost every time the stock hit these resistance levels, it led to a significant selloff.

Looking at the chart, you can see that Herley has now cleared these resistance levels and could be setting up to head towards the next area of significant resistance at around $20 a share. This $20 area looks very achievable since there is little resistance for the stock between the breakout and that price level.

To see more breakout action in stocks such as ( PCLN), TransGlobe Energy ( TGA) and Sourcefire ( FIRE), check out the Breakout Stocks of the Week 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 and maintains the website, 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.

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