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.
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 possibly trade higher from current levels.
Resolute Forest Products
One stock that's starting to rip within range of triggering a major breakout trade is Resolute Forest Products (RFP), which operates in the forest products industry in the U.S., Canada and South Korea. This stock has been pounded lower by the bears over the last six months, with shares off sharply by 42.1%.
If you take a look at the chart for Resolute Forest Products, you'll notice that this stock has been downtrending badly over the last six months, with shares plunging sharply lower from its highs at around $19 to its new 52-week low of $8.87 a share. During that downtrend, shares of Resolute Forest Products have been consistently making lower highs and lower lows, which is bearish technical price action. That said, this stock rebounded sharply higher on Thursday right off a major trendline, and it's now quickly moving 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 Resolute Forest Products if it manages to break out above some key near-term overhead resistance levels at its 20-day moving average of $9.94 and then above more key resistance at $10.14 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 750,106 shares. If that breakout takes hold soon, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at its 50-day moving average of $11.03 to $12.07, or even $12.64 to $13 a share.
Traders can look to buy Resolute Forest Products off weakness to anticipate that breakout and simply use a stop that sits right around its new 52-week low of $8.87 a share. One can also buy this stock off strength once it starts to bust above those breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.