Brocade Communications Systems

One under-$10 stock that's starting to break out is computer storage device maker Brocade Communications Systems ( BRCD). This stock hasn't done much in 2011, with shares off by around 3.6%.

If you take a look at the chart for Brocade Communications Systems, you'll see that this stock has been doing nothing but trending higher since it gapped down in August from around $5 to $3.18 a share. During that uptrend, the stock has been consistently making higher lows and higher highs, which is bullish price action. Now that is quickly approaching a breakout trade if shares can manage to move above some near-term overhead resistance levels.

>>5 Stocks Setting Up to Break Out

Market players should now watch for a sustained move and close above $5.10 and then the 200-day moving average at $5.40 on high volume. A high-volume move above those levels should set this stock up to trend significantly higher. Traders should watch for volume that tracks in close to or above its three-month average volume of 9.9 million shares.

One could be a buyer of this stock off any weakness and anticipate the breakout. I would simply use a stop a few percentage points from your entry if you buy on weakness below the breakout levels. One could also buy off strength and get long once $5.10 is taken out with volume, then add above $5.40 on a high-volume move.

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