5 Stocks Poised for Breakouts

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.

One example of a successful breakout trade I flagged recently was medical technology player Biolase (BIOL), which I featured in Dec. 26's "5 Stocks Under $10 Set to Soar" at $2.11 share. I mentioned in that piece that shares of BIOL had been uptrending strong recently, with the stock moving higher from its low of $1.47 to its high of $2.25 a share. During that move, shares of BIOL had been making mostly higher lows and higher highs, which is bullish technical price action. That move had pushed shares of BIOL within range of triggering a big breakout trade above some key overhead resistance levels at $2.25 to $2.50 a share.

Guess what happened? Shares of BIOL didn't wait long to trigger that breakout, since the stock exploded higher the following trading session with heavy upside volume. Shares of BIOL tagged an intraday high on Dec. 30 of $3.55 a share, and volume for that trading session was 6.68 million shares, vs. its three-month average action of 448,627 shares. That represents a monster gain of close to 70% in just two days for anyone who bought shares of BIOL in anticipation of that breakout. As you can see here, trading high-volume breakouts can lead to monster profits in the markets.

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.

Zalicus

One biopharmaceutical player that's quickly moving within range of triggering a major breakout trade is Zalicus (ZLCS), which discovers and develops treatments for patients suffering from pain and immuno-inflammatory diseases. This stock has been destroyed by the bears over the last three months, with shares down by a whopping 81%.

If you take a look at the chart for Zalicus, you'll notice that this stock gapped down sharply lower during last November, with shares falling from $4.83 to under $1.50 a share with heavy downside volume. Following that gap down, shares of ZLCS have tag a new low of 88 cents per share. This stock has now started to trend sideways over the last few weeks, with shares moving between $1.05 on the downside and $1.43 on the upside. Shares of ZLCS are spiking sharply higher today and taking out some near-term overhead resistance at $1.22 a share. That move is quickly pushing this stock within range of triggering a major breakout trade.

Traders should now look for long-biased trades in ZLCS if it manages to break out above some near-term overhead resistance levels at $1.22 to $1.43 a share, and then once it clears its gap down day high of $1.45 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 1.70 million shares. If that breakout hits soon, then ZLCS will set up to re-fill some of its previous gap down zone from last November that started at $4.83 a share. This stock could easily hit $2 to $2.50 a share if it gets into that gap with volume.

Traders can look to buy ZLCS off any weakness to anticipate that breakout and simply use a stop that sits right around some key near-term support at $1.05 a share. One can also buy ZLCS 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.

Amira Nature Foods

A consumer goods player that's starting to trend within range of triggering a big breakout trade is Amira Nature Foods (ANFI), a global provider of packaged Indian specialty rice, with sales in over 40 countries. This stock has been in play with the bulls over the last three months, with shares up 25%.

If you take a look at the chart for Amira Nature Foods, you'll notice that this stock has been uptrending strong for the last five months, with shares soaring higher from its low of $7.44 to its recent high of $17.41 a share. During that uptrend, shares of ANFI have been making mostly higher lows and higher highs, which is bullish technical price action. Shares of ANFI have started to break out above some key near-term overhead resistance levels today at $15.92 to $16.25 a share. That move is quickly pushing shares of ANFI within range of triggering another big breakout trade.

Traders should now look for long-biased trades in ANFI if it manages to break out above its all-time high of $17.41 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 226,387 shares. If that breakout triggers soon, then ANFI will set up to enter new all-time-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $25 to $27 a share.

Traders can look to buy ANFI off any weakness to anticipate that breakout and simply use a stop that sits right below its 50-day at $15.03 a share or around more key near-term support at $14.72 a share. One could also buy ANFI off strength once it starts to clear $17.41 a share with volume and then simply use a stop that sits a comfortable percentage from your entry point.

Amarin

Another biopharmaceutical player that's starting to trend within range of triggering a big breakout trade is Amarin (AMRN), which commercializes and develops therapeutics to improve cardiovascular health. This stock has been annihilated by the bears over the last three months, with shares off sharply by 70%.

If you take a look at the chart for Amarin, you'll notice that this stock has been uptrending over the last few weeks, with shares gapping up and moving higher from its low of $1.59 to its recent high of $2.19 a share. During that move, shares of AMRN have been making mostly higher lows and higher highs, which is bullish technical price action. That move has started to push shares of AMRN 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 AMRN if it manages to break out above some near-term overhead resistance levels at $2.19 to $2.24 a share, and then once it takes out more key overhead resistance at $2.45 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 9.26 million shares. If that breakout triggers soon, then AMRN will set up to re-fill some of its previous gap down zone from last October that started just above $5 a share.

Traders can look to buy AMRN off any weakness to anticipate that breakout and simply use a stop that sits right below its 50-day moving average of $1.79 a share. One can also buy AMRN 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.

Quad/Graphics

Another stock that's starting to trend within range of triggering a near-term breakout trade is Quad/Graphics (QUAD), which provides print and related services in the U.S., Europe and South America. This stock has is down notably over the last three months, with shares off by 12.2%.

If you look at the chart for Quad/Graphics, you'll notice that this gapped down sharply last November from $36.45 to under $29 with heavy downside volume. Following that gap down, shares of QUAD continued to trend lower, and the stock hit a new low at $23.48 a share a few trading sessions later. That said, shares of QUAD have now started to uptrend since printing that low, with shares moving higher from $23.48 to its recent high of $27.67 a share. During that uptrend, shares of QUAD have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of QUAD within range of triggering a near-term breakout trade.

Traders should now look for long-biased trades in QUAD if it manages to break out above its 50-day moving average of $27.29 a share to more near-term overhead resistance at $27.67 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 185,427 shares. If that breakout hits soon, then QUAD will set up to re-fill some of its previous gap down zone that started at $36.45 a share.

Traders can look to buy QUAD off any weakness to anticipate that breakout and simply use a stop that sits just below more near-term support at $25 to $24.50 a share. One can also buy QUAD off strength once it starts to clear those breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.

Achillion Pharmaceuticals

My final breakout trading prospect is biopharmaceutical player Achillion Pharmaceuticals (ACHN), which focuses on the discovery, development and commercialization of innovative treatments for infectious diseases. This stock has been red hot over the last three months, with shares up sharply by 28%.

If you look at the chart for Achillion Pharmaceuticals, you'll notice that this stock gapped down sharply last September from close to $7.50 a share to under $3 a share with heavy downside volume. Following that gap down, shares of ACHN went on to make a new low at $2.26 a share. Since printing that low, shares of ACHN have started to uptrend, with shares moving higher from $2.26 to its recent high of $3.65 a share. During that uptrend, shares of ACHN have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of ACHN within range of triggering a major breakout trade.

Traders should now look for long-biased trades in ACHN if it manages to break out above some near-term overhead resistance levels at $3.51 to $3.65 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 2.42 million shares. If that breakout triggers soon, then ACHN will set up to re-fill some of its previous gap down zone from last September that started near $7.50 a share. Some possible upside targets of ACHN gets into that gap with volume are $4.50 to $5 a share, or even $5.50 a share.

Traders can look to buy ACHN off any weakness to anticipate that breakout and simply use a stop that sits right below some key near-term support levels at $3.22 or at its 50-day at $2.97 a share. One can also buy ACHN off strength once it starts to take out those breakout levels 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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>>4 Tech Stocks Under $10 in Breakout Territory
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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.