5 Breakout Stock Plays

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.

>>5 Huge Trades for a Volatile 2013

An example of a recent successful breakout trade is non-metallic mining player China Shen Zhou Mining & Resources ( SHZ) which I featured in Dec. 20's " 8 Stocks Under $10 Moving Higher." I mentioned in that piece that SHZ had been uptrending strongly for the last two months, with shares making mostly higher lows and higher highs, which is bullish technical price action. I pointed out that SHZ was starting to move within range of triggering a breakout trade once it cleared some near-term overhead resistance levels at 42 cents to 45 cents per share with high volume.

Guess what happened? Shares of SHZ went on to trigger that breakout and huge volume poured into the stock. That resulted in a big move from 42 cents to an intraday high on Dec. 20 of 51 cents per share. Anyone who caught that breakout trade was able to register quick gains on a stock that confirmed the move with price and volume. Shares of SHZ are now setting up again for another potential breakout trade if it can manage to clear 50 to 55 cents with high volume. If we get that move, then SHZ could make a run at its 200-day moving average of 68 cents per share.

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.

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

RealD

One name that's trending very close to triggering a major breakout trade is RealD ( RLD), which is global licensor of 3D technologies. Its extensive intellectual property portfolio enables a premium 3D viewing experience in the theater, the home and elsewhere. This stock has been hit by the sellers during the last six months, with shares down by 26%.

If you take a look at the chart for RealD, you'll notice that this stock has been uptrending pretty strong for the last three months, with shares moving from a low of $8.57 to its recent high of $11.40 a share. During that uptrend, shares of RLD have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed RLD within range of triggering a major breakout trade.

Traders should now look for long-biased trades in RLD if it manages to break out above its 200-day at $11.12 a share and then once it takes out more overhead resistance levels at $11.31 to $11.40 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 365,564 shares. If that breakout hits soon, then RLD will set up to re-fill its previous gap down zone from August that started around $13 a share. Any high-volume move above $13 could then send RLD towards $14 to $15 a share.

Traders can look to buy RLD off any weakness to anticipate that breakout and simply use a stop that sits right below its 50-day at $10.03 a share. One could also buy RLD off strength once it takes out those breakout levels with volume and then simply use a stop that sits just below $10.50 a share.

Parametric Sound

Another stock that's starting to move within range of triggering a major breakout trade is Parametric Sound ( PAMT), which is focused on delivering directed parametric sound solutions to customers primarily in digital signage, point-of-purchase, in-store networks and related markets that benefit from sound that can be focused and controlled in specified locations. This stock has been on fire so far in 2012, with shares up a whopping 58%.

If you take a look at the chart for Parametric Sound, you'll see that this stock has been uptrending strongly for the last two months, with shares moving from a low of $3.49 to its recent high of $7.38 a share. During that uptrend, shares of PAMT have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of PAMT within range of triggering a major breakout trade.

Market players should now look for long-biased trades in PAMT if it manages to break out above some near-term overhead resistance at its 200-day moving average of $6.96 a share and then once it clears more overhead resistance levels at $7.38 to $7.39 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 55,087 shares. If that breakout triggers soon, then PAMT will set up to potentially make a run at its 52-week high of $11.74 a share.

Traders can look to buy PAMT off any weakness to anticipate that breakout and simply use a stop that sits just below some key near-term support at $6.07 a share. One could also buy off strength once PAMT clears those breakout levels with volume and then simply use the same stop at around $6.07 a share. Traders could also key off its 50-day at $5.35 a share for a potential stop level if you buy off weakness.

Chipotle Mexican Grill

One name that's trending very close to triggering a near-term breakout trade is Chipotle Mexican Grill ( CMG), which develops and operates fast-casual, fresh Mexican food restaurants throughout the United States. This stock has been hammered by the bears during the last six months, with shares off by 22%.

If you look at the chart for Chipotle Mexican Grill, you'll notice that this stock has been uptrending strongly for the last two months, with shares moving higher from a low of $233.82 a share to its recent high of $296.87 a share. During that uptrend, shares of CMG have been mostly making higher lows and higher highs, which is bullish technical price action. That move has pushed CMG back above its 50-day and it's pushed the stock within range of triggering a near-term breakout trade.

Market players should now look for long-biased trades in CMG if it manages to break out above some near-term overhead resistance levels $296.87 to $297 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 976,334 shares. If that breakout triggers soon, then CMG will set up to re-test or possibly take its next major overhead resistance levels at $320 to $330 a share. It's even possible that CMG could tag its 200-day moving average at $341.93 a share off that breakout.

Traders can look to buy CMG off any weakness to anticipate that breakout and simply use a stop that sits close to some key near-term support levels at $287.24 to $285 a share. One can also buy off strength once CMG clears those breakout levels with volume and then use a stop that sits right around $295 a share.

China Green Agriculture

Another stock that's trending very close to triggering a major breakout trade is China Green Agriculture ( CGA), which is engaged in the research, development, production and distribution of humic acid based compound fertilizer; and development, production and distribution of top-grade fruits, vegetables, flowers and colored seedlings. This stock has been uptrending modestly so far in 2012, with shares up 16%.

If you look at the chart for China Green Agriculture, you'll see that this stock has been trending sideways for the last three months, with shares moving between $2.74 on the downside and $3.76 on the upside. This stock has now started to trend back above its 50-day moving average at $3.39 a share and it's quickly moving within range of breaking out above the upper-end of that sideways trading pattern. A move outside of that range with high volume will likely set up CGA for its next major trend.

Traders should now look for long-biased trades in CGA if it manages to break out above some near-term overhead resistance at its 200-day of $3.69 a share and then once it takes out more overhead resistance levels at $3.65 to $3.76 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 56,149 shares. If that breakout hits soon, then CGA will set up to re-test or possibly take out its next major overhead resistance levels at $4.37 to $4.56 a share. Any high-volume move above $4.56 will then put $4.64 to $4.75 a share into focus for CGA.

Traders can look to buy CGA off any weakness and simply use a stop that sits close to some near-term support levels at $3.20 to $3.11 a share. One can also buy off strength once CGA takes out those breakout levels with volume and then simply use a stop that sits right around its 50-day moving average of $3.39 a share.

Five Star Quality Care

My final idea that's trending very close to triggering a near-term breakout trade is Five Star Quality Care ( FVE), which operates senior living communities, including independent living or congregate care communities, assisted living communities and skilled nursing facilities. This stock has been on fire so far in 2012, with shares up a whopping 69%.

If you look at the chart for Five Star Quality Care, you'll notice that this stock has been trending sideways for the last month and change, with shares moving between $4.45 on the downside and $5.38 on the upside. This stock is now approaching its 50-day moving average at $5.09 a share and it's quickly moving within range of breaking out above the upper-end of that sideways trading pattern. If that breakout materializes, then FVE could set up to enter new 52-week high territory, which is bullish technical price action.

Traders should now look for long-biased trades in FVE if it manages to break out above some near-term overhead resistance levels at $5.16 to $5.19 a share and then once it clears some more overhead resistance at $5.38 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 309,146 shares. If that breakout triggers soon, then FVE will set up to re-test or possibly take out its 52-week high of $5.98 a share. Any high-volume move above $5.98 could then put $6.15 to $7 a share into focus for FVE.

Traders can look to buy FVE off any weakness to anticipate that breakout and then simply use a stop that sits just below some key near-term support levels at $4.55 to $4.45 a share. Traders can also just buy FVE off strength once it takes out those breakout levels with volume and then simply use a stop that sits just below $4.80 to $4.70 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 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.

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