Xoma

One under-$10 name that's trading within range of triggering a major breakout trade is Xoma ( XOMA), which discovers and develops antibody-based therapeutics. This stock is off to a monster start in 2012, with shares up over 163%.

If you take a look at the chart for Xoma, you'll see that this stock has been uptrending strong for the last six months, with shares soaring from a low of $1.11 to a recent high of $3.14 a share. During that sharp move higher, shares of Xoma have mostly made higher lows and higher highs, which is bullish price action.

This stock recently formed a double bottom at around $2.22 to $2.25 a share. After forming that bottom, shares of Xoma have ripped higher back above its 50-day moving average of $2.63, and it's started to break out above some near-term overhead resistance at $2.73 to $2.79 a share. That move has now pushed Xoma within range of triggering a much bigger breakout trade.

>>Hot Biotech Stocks Traded by Hedge Funds

Market players should now look for long-biased trades in Xoma if it can manage to trigger a major breakout trade above some past overhead resistance levels at $3.14 to $3.60 a share with high-volume. Look for a sustained move or close above those levels with volume that registers near or above its three-month average action of 855,923 shares. If we get that action soon, then XOMA will have a great chance of re-filling a previous gap-down from 2011 that could take the stock back towards $5 a share.

If you like the look of Xoma here, then I would look to buy this stock off any weakness and simply use a stop at around its 50-day moving average of $2.63 a share. I would add to any long positions above $3.14 a share, and then add again once it takes out $3.60 a share with heavy volume. One could buy off strength and get long above $3.14 or $3.60 with stops just a few percentage points below those levels.

Keep in mind that Xoma sports a decent short interest, since 7.4% of its tradable float is currently sold short by the bears. If that breakout triggers soon, then we could easily see a large short-squeeze setoff that takes Xoma back into that gap from 2011.

If you liked this article you might like

XOMA (XOMA) Weak On High Volume

Xoma Stock Soaring on Q4 Earnings Beat

Xoma Stock Surges in After-Hours Trading on Q4 Results

Friday Small-Cap Focus: Xoma

Friday Small-Cap Focus: Xoma

Xoma Stock Surges, Sells Diabetes Treatment to Novo Nordisk for $295 Million