WINDERMERE, Fla. ( Stockpickr) -- U.S. stocks are up modestly midday off of strong earnings reports from Google ( GOOG) and Citigroup ( C) and a fresh round of M&A activity that involved BHP Billiton ( BHP) acquiring Petrohawk ( HK) and Carl Icahn eyeing a $10.2 billion bid for Clorox ( CLX).

If it weren't for a downgrade warning last night from Standard & Poor's, which said that there's a 50% chance that it may lower its U.S. debt rating, and the fact that eight European banks failed their stress tests, then stocks would most likely be even higher today. Keep in mind that overall the European bank stress tests are being viewed as a success, but many traders are still questioning the results since 16 banks barely survived the tests.

As a dedicated trend trader, I like to see the market moving higher in the face of bad news, even if it's modestly higher. A strong case could be made that just the potential of a U.S. credit downgrade is such dire news that it trumps anything bullish that's crossing the wires at this moment. Market players should pay close attention to the news flow in the coming days and weeks. If that news is predominately negative, and the market still trends higher, then consider that very bullish action.

Most of the major U.S. indices are trading just above their 50-day moving averages or right on that key technical level. The S&P 500 for example, which is one of the most followed indices by large Wall Street traders, is actually trading right under its 50-day moving average of 1312.94. If the S&P 500 can't get back above this key level, then stocks could easily see another notable selloff.

On the flipside, if stocks find support on all of the indices at their 50-day moving averages, then stocks could start another uptrend that could eventually lead to a challenge of their 52-week highs. Market players need to be watching this key technical area on all three indexes very closely in the coming days and weeks.

As of midday, the Dow Jones Industrial Average is up around 17 points at 12,455.05 and the S&P 500 is up over 4 points at 1313.28. The tech-heavy Nasdaq has added 18 points to 2781.49.

Related: 5 Heavily Shorted Market Leaders Set to Soar

The best traders in the world understand that markets are made up of thousands of stocks and tons of sectors. With so many moving parts, there's always some sector or stock that's breaking out and moving higher. Often times those moves will not be dependent on what the overall market is doing.

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 stocks that look poised to break out and potential trade higher from current levels.

Gulf Resources

One chemical manufacturer that looks ready to break out is Gulf Resources ( GURE), which manufactures and trades bromine and crude salt, and manufactures and sells chemical products used in oil and gas field exploration, oil and gas distribution, oil field drilling, wastewater processing, papermaking chemical agents and inorganic chemicals. This stock is off to a decent start in 2011, with shares up over 18%.

If you take a look at the chart for Gulf Resources, you'll see that this stock has started to break out above a key descending trend line from $4 a share that started back in late May. This is a very important technical move on GURE because for the past couple of months, the stock has failed to move higher every time it has touched this descending trend line. Now the trend has changed since GURE is easily trending above that key descending trend line.

Traders should also make note of the clear bullish chart pattern on this stock that also started back in May. Every time the stock has pulled back, traders have been paying up to buy shares. This has created a pattern of higher lows, which is very bullish. On top of that, GURE is starting to break out above some past overhead resistance at $3.60 a share

One could be a buyer of this breakout and simply use a mental stop just below the 50-day moving average of $3.22 a share. I would add to any long position if you see this stock move above $4 a share, which is another key resistance level. A move above $4 should setup GURE to test $4.90 a share or possibly even higher.

It's worth pointing out that this stock is heavily shorted by the bears. The current short interest as a percentage of the float for GURE is a rather large 19.3%. Traders should keep a close eye on GURE for a breakout trade, since this stock could easily short squeeze big with that many bears circling around this name.

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Coeur d'Alene Mines

Another stock that's just starting to form a breakout chart pattern is silver player Coeur d'Alene Mines ( CDE), a primary silver producer with gold production and has assets located in the U.S., Mexico, Bolivia, Argentina and Australia. This stock hasn't done much so far in 2011, with shares up just 2.9%.

If you take a look at the chart for Coeur d'Alene Mines, you'll see that this stock has started to break out above two key overhead resistance levels. The first level is at $26 a share, and the second level is at $27.90 a share. With the stock currently up over 7% at $28 a share, both of those levels have been taken out to the upside. What traders should watch for now is a close today on heavy volume. Look for volume that's close to or above the three-month average action of 3.4 million shares.

A strong volume close with the stock up sharply could be a precursor of more gains to come for CDE. This breakout above $27.90 could mean that CDE is setting up to trend back towards its next significant overhead resistance level at $33.10 a share, or possibly even higher.

One could be a buyer of this stock on any weakness and simply stop out of the trade if CDE drops below its 200-day moving average of $26.34 on heavy volume. I would add to any long position if CDE takes out $33.10 since it could mean a run towards its 52-week high of $37.59 is in the cards.

Jazz Pharmaceuticals

If you're looking for a biotech star that's starting to break out, then take a look at Jazz Pharmaceuticals ( JAZZ), a specialty pharmaceutical company focusing on the development and commercialization of pharmaceutical products to meet unmet medical needs in neurology and psychiatry. This stock is off to a blazing start in 2011, with shares up over 88%.

A Piper Jaffray analyst recently started coverage on JAZZ with an overweight rating and a price target of $51 a share, which is well above its current price near $37 a share. The analyst is bullish on the future sales of Xyrem, a narcolepsy drug that costs about $30,000 a year.

If you take a look at the chart for Jazz, you'll see that this stock biotech player has already started to break out above some past overhead resistance at $36.47 a share. What I love about this breakout in Jazz is that it has started on huge upside volume. Volume on Thursday, which was the first day of the breakout, clocked in at 1.3 million shares, which is well above the three-month average volume of 781,300 shares. In fact, the volume for the entire past month has been very strong when you compare the action on the up days versus the down days.

What's even more bullish about this move on JAZZ is that the stock is now trading just one point off of its all-time high of $38 a share. This means that just about everyone who has bought this stock is making money. It also means that momentum traders are going to circle around this stock since it is displaying so much strength and hitting new highs almost daily.

It's worth noting that the current short interest on JAZZ is rather large at around 13.4% of the tradable float. The short-sellers have also been increasing their bets from the last reporting period by 7.7%, or by about 187,000 shares. Nothing is worse for a short-seller than being short a stock like JAZZ which is now trading at all-time highs.

Zipcar

If you're looking for a recent IPO that looks poised to break out, then take a look at Zipcar ( ZIP), which operates a car-sharing network. Zipcar provides over 400,000 members, also known as Zipsters, with self-service vehicles that are located in reserved parking spaces throughout the neighborhoods where they live and work. This stock is off to a weak start in 2011, with shares off by around 12%.

If you take a look at the chart for Zipcar, you'll see that this IPO has just started to break out above a key descending trend line that had been acting as resistance on the stock for the past couple of months. In fact, anytime the stock traded near this descending trend line, it failed and immediately trended lower. Now the stock has started to trade above the trend line and it looks ready to make a big run higher.

What trades should watch for now is for a big upside volume to start moving into this stock. I would suggest watching for upside volume that's well above its three-month average volume of 646,000 shares as ZIP starts to challenge some of its overhead resistance prices.

Related: 5 Heavily Shorted Market Leaders Set to Soar

One could simply be a buyer of this stock on any weakness as long as ZIP stays above the descending trend line. I would add to any long position once you see ZIP take out some near-term overhead resistance at $25 to $26.37 a share. A move above those levels could set the stock up for a run back toward its all-time highs of $30.80 a share.

It's worth noting that this stock is heavily shorted by the bears. The current short interest as a percentage of the float for ZIP stands at 16.1%. The short-sellers have also been increasing their bets from the last reporting period by 19.7%, or by about 656,000 shares. This stock could easily be setting up to short squeeze big, so keep this name on your trading radar.

Brigham Exploration

One final breakout play that comes out of the energy space is Brigham Exploration ( BEXP), an independent exploration, development and production company that utilizes advanced exploration, drilling and completion technologies to systematically explore for, develop and produce domestic onshore crude oil and natural gas reserves. This name is off to a solid start so far this year with shares up over 17%.

Exploration and production stocks like Brigham Exploration are off the races today after BHP Billiton offered $38.75 a share for Petrohawk Energy, a 65% premium to its closing price from the previous day's trading session. Brigham Exploration, along with names such as Oasis Petroleum ( OAS), Range Resources ( RRC) and Kodiak Oil & Gas ( KOG), have been mentioned by analysts as possible takeover targets off the heels of the BHP deal.

If you take a look at the chart for Brigham Exploration, you'll see that this stock has just started to break out above some past overhead resistance at around $31.87 to $31.89 a share. This past resistance area is very significant, because the stock has failed twice at this level during the past three months. A move above $32 could set this stock up for a run back towards $34 to $35 a share rather quickly.

Traders should keep in mind that shares of BEXP were acting bullish even before the BHP deal hit the wires. You can this on the chart when you notice how BEXP has been making higher lows for the past couple of weeks, which is a bullish technical sign. A pattern of higher lows means that large traders were eager to buy any dip on the stock.

One could be a buyer of this stock as it clears $32 and simply use a mental stop like 15 cents below that price. I would add to any long positions once BEXP clears $34 to $34.95 a share on strong volume. Look for volume that's well above or close to the three-month average action of 3.5 million shares. A move above $34.95 should set up BEXP for a run back towards its 52-week high of $37.87 a share.

To see more breakout candidates, 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 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.

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