One example of a powerful breakout trade I flagged this year was biopharmaceutical player Pain Therapeutics (PTIE), which I featured in Jan. 10's "5 Under-$10 Stocks Primed to Rise in January" at around $2.80 a share. I mentioned in that piece that PTIE was uptrending strong and the stock was consistently making higher lows and higher highs, which is bullish technical price action. That move was quickly pushing PTIE within range of triggering a breakout trade above some key overhead resistance levels at $2.89 to $3.05 a share.
Guess what happened? Shares of PTIE continued to uptrend for the next couple of months, with the stock flirting with that breakout a few times and never violating its 50-day moving average. Then, in early March, PTIE finally triggered that breakout convincingly with strong upside volume flows. The stock hit a high of $3.79 a share and then subsequently sold off to its recent low of $2.80 a share. The stock didn't stay at $2.80 for long, going on to break out again above $3.33 to $3.79 a share, and it hit a recent high of $4.60 a share.
This stock now looks ready to break out again over $4.60. That breakout, if we get it, will result in PTIE getting into its previous gap down zone from 2011 that started near $7 a share. So traders should continue to watch PTIE for a high-volume move above $4.60 since the upside potential into that gap could be huge.
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.
BlackBerry
One name that looks poised to triggering a major breakout trade soon is BlackBerry (BBRY), a designer, manufacturer and marketer of innovative wireless solutions for the worldwide mobile communications market. This stock is red hot so far in 2013, with shares up 34%.
If you take a look at the chart for BlackBerry, you'll see that this stock has been uptrending strong for the last few weeks, with shares trending higher from its low of $13.10 to its recent high of $16.59 a share. During that uptrend, shares of BBRY have been mostly making higher lows and higher highs, which is bullish technical price action. That move has now pushed BBRY within range of taking out some big near-term overhead resistance levels.
Traders should now look for long-biased trades in BBRY if it manages to break out above some near-term overhead resistance levels at $16.59 to $16.82 a share and then once it clears more key resistance levels at $17.22 to $18.32 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 50.8 million shares. If that breakout triggers soon, then BBRY will set up to enter new 52-week-high territory above $18.32, which is bullish technical price action. Some possible upside targets off that breakout are $20 to $25 a share.
Traders can look to buy BBRY off any weakness to anticipate that breakout and simply use a stop that sits just below its 50-day moving average at $14.40 a share. One could also buy BBRY off strength once it takes out those breakout levels with volume and then simply use a stop right below $16 a share. I would add to either position once BBRY clears $17.22 to $18.32 with solid volume.
The short-sellers are in love with this stock, since the current short interest as a percentage of the float for BlackBerry is extremely high at 33.2%. If that breakout triggers soon, then the shorts will be in a world of trouble since BBRY will have a chance to hit new 52-week highs.
Express Scripts
Another stock that's just starting to enter major breakout territory is Express Scripts (ESRX), which offers health care management and administration services such as managed care organizations, health insurers, workers' compensation plans and government health programs. This stock has been rising notably so far in 2013, with shares up 12.6%.
If you take a look at the chart for Express Scripts, you'll notice that this stock recently traded back above both its 50-day and 200-day moving averages with decent upside volume. Following that move, shares of ESRX have started to break out above some key near-term overhead resistance levels at $58.48 to $60.08 a share with solid upside volume flows.
Market players should now look for long-biased trades in ESRX as long as it's trending above today's low of $59.54 or above some key near-term support at $59 and then once it sustains a move or close above $60.08 to today's high of $60.83 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 5.79 million shares. If ESRX can maintain this move, then this stock will set up to re-fill its previous gap down zone from last November that started above $63 a share. If that gap gets filled, then ESRX could even hit $65 to $66 a share.
Ambarella
Another stock that's trending very close to triggering a near-term breakout trade is Ambarella(AMBA), a developer of semiconductor processing solutions for video that enable high-definition video capture, sharing and display. This stock is off to a strong start in 2013, with shares up 23%.
If you look at the chart for Ambarella, you'll notice that this stock has been uptrending strong for the last few weeks, with shares moving higher from its low of $12.11 to its recent high of $14.50 a share. During that uptrend, shares of AMBA have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of AMBA within range of triggering a near-term breakout trade.
Market players should now look for long-biased trades in AMBA if it manages to break out above some near-term overhead resistance at $14.50 a share with high volume. Look for a sustained move or close above $14.50 a share with volume that hits near or above its three-month average action of 384,397 shares. If that breakout hits soon, then AMBA will set up to re-test or possibly take out its all-time high at $16 a share. Some possible upside targets if AMBA clears $16 with volume are $18 to $20 a share.
Traders can look to buy AMBA off any weakness to anticipate that breakout and simply use a stop that sits right below its 50-day moving average at $12.92 a share. One can also buy AMBA off strength once it clears $14.50 a share with volume and then simply use a stop that's a few percentage points below your entry point.
Google
Another stock that's quickly trending within range of triggering a major breakout trade is Google(GOOG), which maintains an index of Web sites and other content. This stock is off to a decent start in 2013, with shares up 17.6%.
If you look at the chart for Google, you'll notice that this stock recently bounced strongly right off its 50-day moving average at $806.20 a share with decent upside volume. Following that bounce, shares of Google have gone on to break out above some near-term overhead resistance at $820 a share. That move is now quickly pushing shares of GOOG within range of triggering a major breakout trade to new all-time highs.
Traders should now look for long-biased trades in GOOG if it manages to break out above some near-term overhead resistance levels at $840 to its all-time high at $844 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 2.29 million shares. If that breakout triggers soon, then GOOG will set up to enter new all-time-high territory above $844, which is bullish technical price action. Some possible upside targets off that breakout are $870 to even $900 a share.
Traders can look to buy GOOG off any weakness to anticipate that breakout and simply use a stop that sits right below some near-term support at $820 a share. One can also buy GOOG off strength once it takes out those breakout levels with volume and then simply use a stop that sits right below $835 a share.
This could be an excellent options play if GOOG breaks out soon, so be ready to trade the momentum if we get a move to new all-time highs with volume.
Ulta Salon, Cosmetics & Fragrance
My final idea for a major breakout trade today is Ulta Salon, Cosmetics & Fragrance (ULTA), a beauty retailer that provides one-stop shopping for mass and salon products and salon services in the U.S. This stock has been under pressure by the sellers so far in 2013, with shares off by 9%.
If you look at the chart for Ulta Salon, Cosmetics & Fragrance, you'll notice that this stock has just started to bounce higher right above its 50-day moving average at $84.82 a share. That move has started to push shares of ULTA into breakout territory, since the stock has cleared some near-term overhead resistance at $88.65 a share. That move is now quickly pushing shares of ULTA within range of triggering an even bigger breakout trade.
Traders should now look for long-biased trades in ULTA if it manages to break out above its 200-day moving average at $91.86 a share and then once it clears more overhead resistance at $92.12 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 1.65 million shares. If that breakout triggers soon, then ULTA will set up to re-fill some of its previous gap down zone from February that started at $100 a share. This stock could even hit $102 to $105 if that gap gets filled solid volume.
Traders can look to buy ULTA off any weakness to anticipate that breakout and simply use a stop that sits right below Thursday's low of $86.36 a share. One could also buy ULTA off strength once it clears those breakout levels with volume and then simply use a stop right below that first breakout level of $88.65 a share or just a few percentage points below your entry point.
This stock has a decent amount of bears involved in the name, since the current short interest as a percentage of the float for ULTA is pretty high at 8%. If that breakout into the gap triggers soon, then a solid short-squeeze could easily develop for ULTA.
This could be another solid options play off the potential breakout, so make sure you're ready to play the momentum if we get it.
To see more breakout candidates, check out the Breakout Stocks of the Week portfolio on Stockpickr.
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