Four Stocks Ready for Breakouts -- Check These Charts

These four stocks have formed technical cup-and-handle patterns on their daily charts and are testing their rim line resistance levels. Here's why they could be compelling trades.

A successful cup-and-handle breakout projects a pattern price objective measured by adding the height of the cup to the rim line.

In each of these cases, the breakout would target a large-percentage gain.

A.O. Smith

A.O. Smith (AOS) manufactures commercial and home water heaters and boilers.

The stock price had been hot going into early October but cooled quickly later in the month, dropping down to just above a 38% Fibonacci retracement of its 2016 range. It was able to bounce sharply this month and return to what had previously been key support in the $48.50 area. This level turned out to be the rim line of a cup-and-handle formation, and it was taken out in Friday's holiday shortened session.

Moving average convergence/divergence has made a bullish crossover and is tracking above its center line, reflecting the improved price momentum. The vortex indicator, which is designed to identify early shifts in trend direction, made a bullish green-over-red line crossover. Chaikin money flow has moved into positive territory, reflecting renewed buying interest in the stock.

It is a long candidate at its current level using a trailing percentage stop.

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