Transcept Pharmaceuticals

Another biotech stock that's approaching a near-term breakout trade is Transcept Pharmaceuticals ( TSPT), a specialty pharmaceutical company focused on the development and commercialization of products that address therapeutic needs in the field of neuroscience. This stock is off to a slow start in 2012, with shares off by around 16% so far.

If you look at the chart for Transcept Pharmaceuticals, you'll notice that this stock has been hammered during the last four months, with shares plunging from a high of $12.99 to a recent low of $5.81 a share. During that plunge, shares of TSPT had been consistently making lower highs and lower lows, which is bearish technical price action.

That said, shares of TSPT now look to have bottomed since the stock has found buying interest at around $5.81 to $5.95 during the last two months. That possible bottom has now put a major breakout into focus if TSPT can manage to clear some near-term overhead resistance levels.

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Market players should now look for long-biased trades in TSPT if it can manage to trigger a near-term breakout trade above some overhead resistance levels at $6.70 to $6.73 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 245,600 shares. If we get that action soon, then TSPT could easily re-test and possibly take out some more resistance levels at $7.45 and its 200-day moving average of $7.97 a share.

One could buy TSPT off any weakness and simply use a stop close to some near-term support at $6.16 a share. You could also just get long off strength once TSPT clears $6.70 to $6.73 with heavy volume. If you buy off strength, then I would use a stop near its 50-day moving average of $6.51, or even down towards $6.16 if you want to give it more room.

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