5 Stocks Ready for Breakouts

 DELAFIELD, Wis. (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 who can ultimately push the stock significantly higher.

One example of a successful breakout trade I flagged recently was biotechnology player Tetraphase Pharmaceuticals (TTPH) , which I featured in Aug. 18's "5 Stocks Triggering Big Breakout Trades" at around $11.60 per share. I mentioned in that piece that shares of Tetraphase Pharmaceuticals were uptrending over the last month and change, with shares moving higher from its low of $10.03 to its recent high of $12.35 a share. That uptrend was starting to push shares of TTPH within range of triggering a big breakout trade above some key near-term overhead resistance levels at $12.04 to $12.35 a share.

Guess what happened? Shares Tetraphase Pharmaceuticals triggered that breakout a few weeks later with decent upside volume flows. Then on Sept. 3 this stock gapped up sharply higher with monster upside volume of 1.82 million shares, which is well above its three-month average action of 276,214 shares. This stock has continued to soar and uptrend with shares of TTPH tagging a recent intraday high of $17.39 a share. That represents a monster gain of right around 50% in a very short time frame for anyone who bought TTPH around the time of my original article. As you can see, trading breakouts that trigger with volume and produce monster gains very quickly.

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.

El Pollo Loco

One restaurant player that's starting to trend within range of triggering a big breakout trade is El Pollo Loco (LOCO) , which develops, franchises, licenses and operates quick-service restaurants under the El Pollo Loco name principally in California, as well as in Arizona, Nevada, Texas and Utah. This stock is off to a monster start in 2014, with shares up sharply by 61%.

If you take a look at the chart for El Pollo Loco, you'll notice that this stock has been uptrending strong over the last month, with shares soaring higher from its low of $28.56 to its intraday high of $36.60 a share. During that uptrend, shares of LOCO have been consistently making higher lows and higher highs, which is bullish technical price action. Shares of LOCO have now started to enter breakout territory above some near-term overhead resistance at $38.35 a share. That move is quickly pushing shares of LOCO within range of triggering a much bigger breakout trade that could potentially push this stock into new all-time-high territory.

Traders should now look for long-biased trades in LOCO if it manages to break out above some near-term overhead resistance levels at $40.25 to its all-time high at $41.70 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 6.16 million shares. If that breakout materializes soon, then LOCO will set up to enter new all-time-high territory, which is bullish technical price action. Some possible upside targets off that move are $50 to $55 a share, or even $60 a share.

Traders can look to buy LOCO off weakness to anticipate that breakout and simply use a stop that sits right around some near-term support levels at $35.30 to $33.35 a share. One can also buy LOCO off strength once it starts to take out those breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.

Web.com Group

A Internet information provider that's starting to move within range of triggering a big breakout trade is Web.com Group (WWWW) , which provides Internet services to small businesses in North America, South America and the United Kingdom. This stock has been under heavy selling pressure so far in 2014, with shares down sharply by 37%.

If you take a glance at the chart for Web.com Group, you'll see that this stock gapped down sharply lower in late July from around $27 to $19.36 a share with heavy downside volume. Following that move, shares of WWWW went on to make a new 52-week low at $18.61 a share. That said, shares of WWWW have now started to rebound higher off that $18.61 low and it's starting to flirt with some near-term overhead resistance levels at $19.69 a share. That action is starting to push shares of WWWW within range of triggering a major breakout trade above some key near-term overhead resistance levels.

Traders should now look for long-biased trades in WWWW if it manages to break out above some key near-term overhead resistance levels at $20 to $20.71 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 1.03 million shares. If that breakout gets underway soon, then WWWW will set up to re-fill some of its previous gap-down-day zone from late July that started near $27 a share.

Traders can look to buy WWWW off weakness to anticipate that breakout and simply use a stop that sits right below some key near-term support levels at $18.67 to $18.61 a share. One could also buy WWWW off strength once it starts to clear those breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.

GrubHub

Another mobile application software player that's starting to trend within range of triggering a near-term breakout trade is GrubHub (GRUB) , which provides an online and mobile platform for restaurant pick-up and delivery orders in the U.S. This stock is off to a respectable start in 2014, with shares up notably by 16%.

If you take a glance at the chart for GrubHub, you'll notice that this stock recently formed a double bottom chart pattern at $37.58 to $37.02 a share. Following that bottom, shares of GRUB have now started to spike higher off those support levels and right off its 50-day moving average of $37.19 a share. That spike is now starting to push shares of GRUB within range of triggering a near-term breakout trade above some key overhead resistance levels.

Traders should now look for long-biased trades in GRUB if it manages to break out above some key overhead resistance levels at $40 to $42 a share with high volume. Watch for a sustained move or close above those levels with volume that registers near or above its three-month average action 603,445 shares. If that breakout develops soon, then GRUB will set up to re-test or possibly take out its next major overhead resistance levels at $45.66 to its all-time high at $45.80 a share. Any high-volume move above $45.80 will then give GRUB a chance to make a run at $50 to $55 a share.

Traders can look to buy GRUB off weakness to anticipate that breakout and simply use a stop that sits right below some key near-term support levels at $37.02 to $35 a share. One can also buy GRUB off strength once it starts to move above those breakout levels share with volume and then simply use a stop that sits a comfortable percentage from your entry point.

Nimble Storage

Another data storage player that's starting to move within range of triggering a major breakout trade is Nimble Storage (NMBL) , which provides flash-optimized hybrid storage platform. This stock has been under heavy selling pressure so far in 2014, with shares off sharply by 37%.

If you take a glance at the chart for Nimble Storage, you'll notice that this stock has been uptrending over the last two months, with shares moving higher from its low of $24.03 to its recent high of $31.43 a share. During that move, shares of NMBL have been making mostly higher lows and higher highs, which is bullish technical price action. Shares of NMBL have now started to spike notably higher right off its 50-day moving average of $27.26 a share with strong upside volume flows. Volume on last Friday registered 1.49 million shares, which is well above its three-month average action of 908,789 a shares. That spike is starting to push shares of NMBL within range of triggering a major breakout trade above some key overhead resistance levels.

Traders should now look for long-biased trades in NMBL if it manages to break out above some key overhead resistance levels at $31.43 to $31.49 a share and then above $31.66 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 908,789 shares. If that breakout develops soon, then NMBL will set up to re-test or possibly take out its next major overhead resistance levels at $37.19 to $41.10 a share.

Traders can look to buy NMBL off weakness to anticipate that breakout and simply use a stop that sits around some key near-term support levels at $25 to $24 a share. One can also buy NMBL off strength once it starts to burst above those breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.

TCP International

My final breakout trading prospect is lighting fixtures player TCP International (TCPI) , which designs, develops, and markets lighting products and accessories to the commercial, industrial, and retail markets in North America, Asia, Europe, and South America. This stock has been hit hard by the bears so far in 2014, with shares off large by 34%.

If you look at the chart for TCP International, you'll notice that this stock has been downtrending badly for the last two months, with shares plunging sharply lower from its high of $11.40 to its recent low of $6.20 a share. During that move, shares of TCPI have been consistently making lower highs and lower lows, which is bearish technical price action. That said, shares of TCPI have now started to stabilize and consolidate, with this stock moving sideways between $6.20 on the downside and $7.28 on the upside. Shares of TCPI are now starting to spike higher off the lower-end of its recent range and it's quickly approaching a near-term breakout trade.

Traders should now look for long-biased trades in TCPI if it manages to break out above some near-term overhead resistance levels at $6.92 to $7.28 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 171,629 shares. If that breakout materializes soon, then TCPI will set up to re-test or possibly take out its next major overhead resistance levels at its 50-day moving average of $8.32 to $9.25 a share, or even $10 to $10.25 a share.

Traders can look to buy TCPI off weakness to anticipate that breakout and simply use a stop that sits right below some key near-term support levels at $6.50 to its all-time low of $6.20 a share. One can also buy TCPI off strength once it starts to clear those breakout levels with volume and then simply use a stop that sits a conformable percentage from your entry point.

To see more breakout candidates, check out the Breakout Stocks of the Week portfolio on Stockpickr.

-- Written by Roberto Pedone in Delafield, Wis.

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At the time of publication, author had no positions in stocks mentioned. Roberto Pedone, based out of Delafield, Wis., 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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