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 that can ultimately push the stock significantly higher.
One example of a successful breakout trade I flagged recently was biopharmaceuticals player Sarepta Therapeutics (SRPT), which I featured in Sept. 16's "5 Stocks Ready for Breakouts" at around $37.50 a share. I mentioned in that piece that shares of SRPT had recently started to spike back above its 50-day moving average, and that move was quickly pushing the stock within range of triggering a big breakout trade. That trade was set to hit if SRPT managed to take out some near-term overhead resistance at $37.50 to $39.12 a share.
Guess what happened? Shares of SRPT didn't wait long to trigger that breakout, since the stock took out those resistance levels on Sept. 20 with monster upside volume. Shares of SRPT tagged a recent high of $49.19 a share, which represents a monster gain of over 30% in just a few days for anyone who played that breakout. This breakout had all the ingredients of success since you had sustained price action through key resistance levels accompanied by big upside volume.
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.
AcelRx Pharmaceuticals
One stock that's starting to trend within range of triggering a near-term breakout trade is AcelRx Pharmaceuticals (ACRX), which is involved in the development and commercialization of therapies for the treatment of acute and breakthrough pain. This stock has been on fire so far in 2013, with shares up big by 150%.
If you take a look at the chart for AcelRx Pharmaceuticals, you'll notice that this stock has been uptrending modestly for the last month and change, with shares moving higher from its low of $8.94 to its recent high of $11.52 a share. During that uptrend, shares of ACRX have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of ACRX within range of triggering a near-term breakout trade.
Traders should now look for long-biased trades in ACRX if it manages to break out above some near-term overhead resistance levels at $11.36 to $11.52 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 635,439 shares. If that breakout hits soon, then ACRX will set up to re-test or possibly take out its next major overhead resistance levels at $12.50 to its all-time high at $13.50 a share. Any high-volume move above $13.50 will then give ACRX a chance to tag $15 a share.
Traders can look to buy ACRX off any weakness to anticipate that breakout and simply use a stop that sits right below some key near-term support levels at $10.35 to $10 a share. One can also buy ACRX off strength once it takes out those breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.
Ceres
Another renewable energy player that looks ready to trigger a big breakout trade is Ceres (CERE), which sells seeds to produce renewable biomass feedstocks that can enable the large-scale replacement of petroleum and other fossil fuels. This stock has been hammered by the bears so far in 2013, with shares off sharply by 66%.
If you take a look at the chart for Ceres, you'll notice that this stock has just started to trend back above its 50-day moving average of $1.45 a share with heavy upside volume flows. Volume so far today has already registered over 1.15 million shares, which is well above its three-month average action of 670,538 shares. This spike back above its 50-day is now quickly pushing shares of CERE within range of triggering a big breakout trade.
Traders should now look for long-biased trades in CERE if it manages to break out above some near-term overhead resistance levels at $1.67 to $1.68 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 670,538 shares. If that breakout hits soon, then CERE will set up to re-test or possibly take out its next major overhead resistance levels at $2 to $2.50 a share. Shares of CERE could even tag $3 if this breakout triggers with strong volume.
Traders can look to buy CERE off any weakness to anticipate that breakout and simply use a stop that sits right below $1.40 a share. One could also buy CERE off strength once it takes out those breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.
Arca Biopharma
One biopharmaceuticals player that's starting to trend within range of triggering a major breakout trade is Arca Biopharma (ABIO), which is developing genetically-targeted therapies for cardiovascular diseases. This stock has been under pressure by the sellers so far in 2013, with shares down big by 37%.
If you take a look at the chart for Arca Biopharma, you'll notice that this stock has been trending sideways and consolidating for the last two months and change, with shares moving between $1.29 on the downside and $1.53 on the upside. Shares of ABIO are now starting to uptrend over the last month as the stock moves within range of triggering a major breakout trade above the upper-end of its recent sideways trading chart pattern.
Traders should now look for long-biased trades in ABIO if it manages to break out above some near-term overhead resistance levels at $1.47 to $1.53 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 331,253 shares. If that breakout triggers soon, then ABIO will set up to re-test or possibly take out its next major overhead resistance level at $1.65 a share. Any high-volume move above $1.65 will then give ABIO a chance to re-fill some of its previous gap down zone from May that started near $2.80 a share.
Traders can look to buy ABIO off any weakness to anticipate that breakout and simply use a stop that sits right below its 50-day at $1.38 a share, or near more support at $1.29 a share. One can also buy ABIO off strength once it takes out those breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.
Sky-mobi
Another stock that's starting to move within range of triggering a big breakout trade is Sky-mobi (MOBI), which, through its subsidiaries, engages in the operation of a mobile application platform embedded on mobile phones to provide mobile application store and services in the People's Republic of China. This stock has been red hot so far in 2013, with shares up a whopping 88%.
If you look at the chart for Sky-mobi, you'll notice that this stock recently formed a triple bottom chart pattern at $3.31, $3.28 and $3.40 a share. That bottoming pattern occurred over the last two months. Shares of MOBI have now started to uptrend and flirt with its 50-day moving average of $3.76 a share. That move is quickly pushing MOBI within range of triggering a big breakout trade.
Traders should now look for long-biased trades in MOBI if it manages to break out above some near-term overhead resistance levels at $3.71 to $3.83 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 145,934 shares. If that breakout triggers soon, then MOBI will set up to re-test or possibly take out its 52-week high at $4.96 a share. Any high-volume move above that level will then give MOBI a chance to tag its next major overhead resistance levels at $5.55 to $6.13 a share.
Traders can look to buy MOBI off any weakness to anticipate that breakout and simply use a stop that sits right below some key near-term support levels at $3.40 to $3.28 a share. One can also buy MOBI off strength once it takes out that breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.
Live Nation Entertainment
My final breakout trading prospect is Live Nation Entertainment (LYV), which is a producer of live music concerts. This stock is a favorite target of the bulls so far in 2013, with shares up big by 96%.
If you look at the chart for Live Nation Entertainment, you'll notice that this stock recently formed a triple bottom chart pattern over the last two months, with shares finding buying interest at $16.66, $16.70 and $16.89 a share. Following that bottom, shares of LYV have now started to spike higher right off its 50-day moving average of $17.20 a share. That move is quickly pushing shares of LYV within range of triggering a major breakout trade.
Traders should now look for long-biased trades in LYV if it manages to break out above its 52-week high at $18.93 a share with high volume. Look for a sustained move or close above that level with volume that hits near or above its three-month average action of 1.02 million shares. If that breakout triggers soon, then LYV will set up to enter new 52-week high territory, which is bullish technical price action. Some possible upside targets off that breakout are $23 to $25 a share.
Traders can look to buy LYV off any weakness to anticipate that breakout and simply use a stop that sits right below its 50-day at $17.20 a share or below more key support levels at $16.89 to $16.66 a share. One could also buy LYV off strength once it clears its 52-week high at $18.93 a share 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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