5 Breakout Stocks: Must-See Charts

WINDERMERE, Fla. ( Stockpickr) -- Trading stocks that trigger major breakouts can lead to massive profits. Once a stock trends to a new high, or takes out a prior overhead resistance point, then it's free to find new buyers and momentum players that can ultimately push the stock significantly higher.

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An example of a recent successful breakout trade is alternative energy player Solazyme ( SZYM) which I featured in Dec. 04's " 4 Under-$10 Stocks Soaring with Room to Grow." I mentioned in that piece that SZYM was bouncing higher off some near-term support at $7.05 a share with decent volume. That bounce was starting to push SZYM within range of triggering a near-term breakout trade once it managed to clear $7.75 with high volume.

Guess what happened? Shares of SZYM triggered that breakout a few trading sessions later with monster upside volume. This stock went on to run to its recent high of $9.90 a share, which was tagged on December 14. That's a big gain in a very short timeframe for anyone that took that trade. The best part about this trade is that volume showed up to confirm that large buyers were moving into the stock once it broke out. Volume isn't always necessary for a breakout trade, but it raises the probability of success when we get it.

Breakout candidates are something that I tweet about on a daily basis. I frequently tweet out high-probability setups, breakout plays and stocks that are acting technically bullish. These are the stocks that often go on to make monster moves to the upside. What's great about breakout trading is that you focus on trend, price and volume. You don't have to concern yourself with anything else. The charts do all the talking.

Trading breakouts is not a new game on Wall Street. This strategy has been mastered by legendary traders such as William O'Neal, Stan Weinstein and Nicolas Darvas. These pros know that once a stock starts to break out above past resistance levels, and hold above those breakout prices, then it can easily trend significantly higher.

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With that in mind, here's a look at five stocks that are setting up to break out and trade higher from current levels.

Pactera Technology

One name that's trending very close to triggering a near-term breakout trade is Pactera Technology ( PACT), which provides business/IT consulting, solutions, and outsourcing services to multinational firms through a network of onsite and offsite delivery locations in China, the US, Europe, Australia, Japan, Singapore & Malaysia. This stock has been hit by the sellers during the last three months, with shares off by 24%.

If you take a look at the chart for Pactera Technology, you'll notice that this stock recently dropped sharply from its November high of $11.22 a share to its recent low of $6.25 a share. During that run lower, shares of PACT were consistently making lower highs and lower lows, which is bearish technical price action. That said, the stock has started to bounce off that $6.25 low and quickly move within range of triggering a near-term breakout trade.

Traders should now look for long-biased trades in PACT if it manages to break out above some near-term overhead resistance levels at $7.50 to $7.99 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 121,437 shares. If that breakout triggers soon, then PACT will set up to re-test or possibly take out its next major overhead resistance levels at its 50-day moving average of $8.47 a share. Any high-volume move above its 50-day will then put $9 to $10 a share into focus for shares of PACT.

Traders can look to buy PACT off any weakness to anticipate that breakout and simply use a stop that sits right below some near-term support at $7 a share. One could also buy off strength once PACT takes out those breakout levels with volume and then simply use a stop that sits a few percentage points below $7.50 a share.

Venaxis

Another stock that's starting to move within range of triggering a major breakout trade is Venaxis ( APPY), which develops products for human diagnostic and animal health therapeutic needs. This stock has hot during the last three months, with shares up by 30%.

If you take a look at the chart for Venaxis, you'll see that this stock has started to bounce today right above its 50-day moving average of $2.42 a share and back above its 200-day moving average of $2.70 a share. This action is quickly pushing APPY within range of triggering a major breakout trade.

Market players should now look for long-biased trades in APPY if it manages to break out above some near-term overhead resistance levels at $2.91 to $2.94 a share and then once it takes out some more overhead resistance levels at $3.17 to $3.18 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 371,216 shares. If that breakout triggers soon, then APPY will set up to re-test or possibly take out its next major overhead resistance levels at $3.50 to $3.96 a share. Any high-volume move above those levels will then put $4 to $4.50 into focus for shares of APPY.

Traders can look to buy APPY off any weakness to anticipate that breakout and simply use a stop that sits just below its 50-day moving average of $2.42 a share. One could also buy off strength once APPY clears those breakout levels with volume and then simply use a stop right around its 200-day or 50-day moving averages.

International Tower Hill Mines

One name that's quickly moving within range of triggering a major breakout trade is International Tower Hill Mines ( THM), which controls a 100% interest in the Livengood gold project near Fairbanks, Alaska, which ranks among the top 2% in deposit size of recent gold discoveries. This stock has been downtrending so far in 2012, with shares off by 54%.

If you look at the chart for International Tower Hill Mines, you'll notice that this stock has been downtrending badly for the last three months, with shares dropping from a high of $3.25 to its recent low of $1.98 a share. During that downtrend, shares of THM have been mostly making lower highs and lower lows, which is bearish technical price action. That said, the stock has started to bounce strongly off that $1.98 low and quickly move within range of triggering a major breakout trade.

Market players should now look for long-biased trades in THM once it manages to break out above its 50-day moving average of $2.30 and then once it takes out more overhead resistance levels at $2.42 to $2.43 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 230,737 shares. If that breakout hits soon, then THM will set up to re-test or possibly take its next major overhead resistance levels at $2.81 to its 200-day moving average at $3.02 a share. Any high-volume move above $3.02 a share will then put $3.20 to $3.25 into focus for shares of THM.

Traders can look to buy THM off any weakness to anticipate that breakout and simply use a stop that sits right below its near-term low of $1.98 a share. One can also buy off strength once THM clears those breakout levels with volume and then use a stop that sits right below its 50-day at $2.30 a share or near $2.20 a share.

Jade International

Another stock that's moving within range of triggering a near-term breakout trade is Jade International ( JADE), which specializes in the colored jewelry segment, it also offers high-end pieces set in yellow gold, white gold or sterling silver and adorned with colored stones, diamonds, pearls and precious stones. This stock has been trading off a bit so far in 2012, with shares down by 7.8%.

If you look at the chart for Jade International, you'll notice that this stock has just started to challenge its 50-day moving average of $1.74 a share and its trending just below its 200-day moving average of $1.79 a share. What's interesting about JADE here is that the volume today expanded dramatically with 480,000 shares traded versus its three-month average volume of 51,373 shares. Shares of JADE are now moving within range of triggering a near-term breakout trade.

Traders should now look for long-biased trades in JADE once it manages to break out above some near-term overhead resistance levels at $1.75 to $1.83 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 51,373 shares. If that breakout triggers soon, then JADE will set up to re-test or possibly take out its next major overhead resistance levels at $1.98 to $2.05 a share. Any high-volume move above $2.05 will then put $2.41 to $2.45 into focus for shares of JADE.

Traders can look to buy JADE off any weakness and simply use a stop that sits close to some near-term support at $1.65 a share. One can also buy off strength once JADE takes out those breakout levels with volume and then simply use a stop right below its 50-day at $1.74 a share.

Gastar Exploration

My final idea that's trending very close to triggering a near-term breakout trade is Gastar Exploration ( GST), which is an independent energy company, engaged in the exploration, development and production of natural gas and oil in the U.S. This stock been hammered by the bears so far in 2012, with shares down by a whopping 62%.

If you look at the chart for Gastar Exploration, you'll see that this stock has recently started to trend back above its 50-day moving average of 97 cents per share with decent upside volume flows. Volume on Friday registered 1.15 million shares traded versus its three month average action of 479,365 shares. The stock closed up 11% to $1.19 a share. That spike is quickly pushing shares of GST within range of triggering a near-term breakout trade.

Traders should now look for long-biased trades in GST once it manages to take out some near-term overhead resistance levels at $1.12 to $1.25 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 volume of 479,365 shares. If that breakout triggers soon, then GST will set up to re-test or possibly take out its next major overhead resistance levels at $1.39 to $1.40 a share. Any high-volume move above those levels will then put $1.78 to its 200-day at $1.82 into focus for shares of GST.

One could look to buy GST off any weakness to anticipate that breakout and then simply use a stop that sits just below its 50-day at 97 cents per share. Traders can also just buy off strength once GST takes out those breakout levels with volume and then simply use a stop that also sits near its 50-day at 97 cents per 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 technical analysis for small- and large-cap stocks, options, futures, commodities and currencies. Roberto studied international business at the Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany. His work has appeared on financial outlets including CNBC.com and Forbes.com. You can follow Pedone on Twitter at www.twitter.com/zerosum24 or @zerosum24.