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.
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One example of a successful breakout trade I flagged recently was technology player MobileIron (MOBL), which I featured in Aug. 22's "5 Breakout Stocks Under $10 Set to Soar" at around $9.14 per share. I mentioned in that piece that shares of MobileIron recently formed a double bottom chart pattern at $8.20 to $8.30 a share. Following that bottom, shares of MOBL were starting to trend higher and move within range of triggering a big breakout trade above some key near-term overhead resistance at $9.60 a share.
Guess what happened? Shares of MobileIron triggered that breakout a few treading sessions later with strong upside volume flows. Volume on Aug. 25 registered 1.49 million shares, which is well above its three-month average action of 696,350 shares. Shares of MOBL continued to tend higher following that breakout, with this stock recently tagging a new all-time high of $12.96 a share. That represents a monster gain of right around 40% in just a few trading sessions for anyone who bought shares of MOBL around the time of my article. As you can see, when breakouts trigger with volume the gains can be large once a stock catches momentum and trends 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 trade higher from current levels.
Read More: 5 Breakout Stocks Under $10 Set to Soar
Staples
One specialty retail player that's starting to move within range of triggering a big breakout trade is Staples (SPLS), which operates office products superstores. This stock has been under some selling pressure so far in 2014, with shares off by 14%.
If you take a look at the chart for Staples, you'll notice that this stock recently formed a double bottom chart pattern at $10.70 to $10.82 a share. Following that bottom, shares of SPLS have started to uptrend with the stock moving back above its 50-day moving average. That uptrend has now quickly pushing shares of SPLS within range of triggering a big breakout trade above some key near-term overhead resistance levels.
Traders should now look for long-biased trades in SPLS if it manages to break out above some near-term overhead resistance at $11.83 a share to its gap-down-day from May at $12.14 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 volume of 9.31 million shares. If that breakout triggers soon, then SPLS will set up to re-fill some of its previous gap-down-day zone from May that started just above $13.20 a share.
Traders can look to buy SPLS off weakness to anticipate that breakout and simply use a stop that sits right below its 50-day moving average of $11.21 a share. One can also buy SPLS 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.
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Facebook
A technology player that's starting to trend within range of triggering a big breakout trade is Facebook (FB), which operates as a social networking company worldwide. This stock has been on fire so far in 2014, with shares up sharply by 36%.
If you take a glance at the chart for Facebook, you'll see that this stock has been uptrending a bit for the last month, with shares moving higher from its low of $71.55 to its recent high of $75.99 a share. During that uptrend, shares of FB have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of FB within range of triggering a big breakout trade above some key near-term overhead resistance levels.
Traders should now look for long-biased trades in FB if it manages to break out above some key near-term overhead resistance at $75.99 to its all-time high of $76.74 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 38.88 million shares. If that breakout develops soon, then FB will set up to enter new all-time-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $85 to $90 a share, or even north of $95 a share.
Traders can look to buy FB off weakness to anticipate that breakout and simply use a stop that sits right around some key near-term support at $72 a share or around its 50-day moving average of $70.74 a share. One could also buy FB 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.
Read More: 3 Tech Stocks on Traders' Radars
Arrowhead Research
A biopharmaceutical player that's starting to trend within range of triggering a big breakout trade is Arrowhead Research (ARWR), which develops targeted RNAi therapeutics in the U.S. This stock is off to a very strong start so far in 2014, with shares up sharply by 34%.
If you take a glance at the chart for Arrowhead Research, you'll notice that this stock has been uptrending strong for the last month, with shares moving higher from its low of $10.62 to its recent high of $15.63 a share. During that uptrend, shares of ARWR have been consistently making higher lows and higher highs, which is bullish technical price action. That strong move has now started to push shares of ARWR within range of triggering a big breakout trade above some key overhead resistance levels.
Traders should now look for long-biased trades in ARWR if it manages to break out above some key overhead resistance levels at $15.63 to $15.73 a share with high volume. Watch for a sustained move or close above those levels with volume that hits near or above its three-month average action 2.90 million shares. If that breakout materializes soon, then ARWR will set up to re-test or possibly take out its next major overhead resistance levels at $18.87 to around $20 a share. Any high-volume move above those levels will then give ARWR a chance to tag its next major overhead resistance level at around $24 a share.
Traders can look to buy ARWR off weakness to anticipate that breakout and simply use a stop that sits right below its 50-day moving average of $12.90 a share. One can also buy ARWR 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.
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Infoblox
Another technology player that's starting to trend within range of triggering a major breakout trade is Infoblox (BLOX), which develops, markets, and sells automated network control solutions worldwide. This stock has been destroyed by the bears so far in 2014, with shares of huge by 59%.
If you take a glance at the chart for Infoblox, you'll see that this stock spiked sharply higher on last Friday right above its 50-day moving average of $12.47 a share with decent upside volume flows. This sharp move to the upside is quickly pushing shares of BLOX within range of triggering a major breakout trade above some key overhead resistance levels.
Traders should now look for long-biased trades in BLOX if it manages to break out above some key overhead resistance levels at $13.47 to $13.98 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 volume of 1.46 million shares. If that breakout gets underway soon, then BLOX will set up to re-fill some of its previous gap-down-day zone from May that started just above $20 a share.
Traders can look to buy BLOX off weakness to anticipate that breakout and simply use a stop that sits right below its 50-day moving average of $12.47 a share or around more support at $12 a share. One can also buy BLOX 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.
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Recon Technology
My final breakout trading prospect is energy player Recon Technology (RCON), which provides hardware, software, and on-site services to companies in the petroleum mining and extraction industry in the People's Republic of China. This stock has been moving very strong to the upside so far in 2014, with shares up large by 51%.
If you look at the chart for Recon Technology, you'll notice that this stock has been uptrending a bit over the last month, with shares moving higher from is low of $3.46 to its recent high of $5 a share. During that move, shares of RCON have been making mostly higher lows and higher highs, which is bullish technical price action. This action has now pushed shares of RCON back above both its 50-day and 200-day moving averages, which is bullish. Shares of RCON are now quickly moving within range of triggering a near-term breakout trade.
Traders should now look for long-biased trades in RCON if it manages to break out above some key near-term overhead resistance levels at $5 to $5.05 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 98,703 shares. If that breakout materializes soon, then RCON will set up to re-test or possibly take out its next major overhead resistance levels at $5.62 to around $6.50 a share, or even $7 a share.
Traders can look to buy RCON off weakness to anticipate that breakout and simply use a stop that sits right below its 50-day moving average of $4.16 a share or near some more support at $3.75 a share. One can also buy RCON 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.
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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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