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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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.
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With that in mind, here's a look at five stocks that are setting up to break out and trade higher from current levels.
Ventrus Biosciences
One development stage specialty pharmaceutical player that's starting to move within range of triggering a near-term breakout trade is Ventrus Biosciences (VTUS), which is focused on the development and commercialization of late-stage prescription drugs for gastrointestinal disorders. This stock has been destroyed by the bears in 2014, with shares off huge by 67%.
If you take a look at the chart for Ventrus Biosciences, you'll notice that this stock gapped down huge in February from $4.69 to under $1.75 a share with heavy downside volume. This stock continued to trend lower the next two months, with shares hitting a fresh low of $1.13 a share earlier this month. Amazingly, shares of VTUS did not go down during Thursday's market carnage and the stock is now starting to trend just a bit higher and move within range of triggering a near-term breakout trade.
Traders should now look for long-biased trades in VTUS if it manages to break out above Thursday's high of $1.25 a share to some more near-term overhead resistance at $1.31 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 956,437 shares. If that breakout busts out soon, then VTUS will set up to re-test or possibly take out its next major overhead resistance levels at $1.47 to $1.50 a share. Any high-volume move above those levels will then give VTUS a chance to tag $1.75 a share.
Traders can look to buy VTUS off weakness to anticipate that breakout and simply use a stop that sits right below some key near-term support levels at $1.15 or at $1.13 a share. One can also buy VTUS 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.
Silicon Motion Technology
A technology stock that's starting to trend within range of triggering a major breakout trade is Silicon Motion Technology (SIMO), a fabless semiconductor company that designs, develops and markets semiconductor solutions for the multimedia consumer electronics market. This stock has been a favorite play of the bulls so far in 2014, with shares up by 25%.
If you take a look at the chart for Silicon Motion Technology, you'll see that this stock has been trending sideways and consolidating for the last two months and change, with shares moving between $16.03 on the downside and $18.44 on the upside. Shares of SIMO have recently crossed back above its 50-day moving average and it's now quickly moving within range of triggering a major breakout trade. It's also worth noting that shares of SIMO went up on Thursday during the market drop with strong upside volume.
Traders should now look for long-biased trades in SIMO if it manages to break out above some near-term overhead resistance levels at Thursday's high of $17.89 a share to its 52-week high at $18.44 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 370,247 shares. If that breakout triggers soon, then SIMO will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are its next major overhead resistance levels at $20.92 to $23.54 a share.
Traders can look to buy SIMO off weakness to anticipate that breakout and simply use a stop that sits right below some key near-term support levels at its 50-day moving average of $16.85 a share or around $16 a share. One could also buy SIMO 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.
Avon Products
Another stock that's starting to trend within range of triggering a near-term breakout trade is Avon Products (AVP), which manufactures and markets beauty and related products. This stock has been hit hard by the bears over the last six months, with shares off by 27%.
If you take a glance at the chart for Avon Products, you'll notice that this stock has been trending sideways and consolidating for the last two months, with shares moving between $14.18 on the downside and $15.80 on the upside. Shares of AVP did not go down on Thursday during the market decline and it closed right above its 50-day moving average of $14.86 with strong upside volume flows. That modest spike higher on Thursday is starting to push shares of AVP within range of triggering a near-term breakout trade.
Traders should now look for long-biased trades in AVP if it manages to break out above Thursday's high of $15.20 to some more near-term overhead resistance at $15.80 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 of 4.43 million shares. If that breakout materializes soon, then AVP will set up to re-test or possibly take out its next major overhead resistance levels at $17 to $18 a share. Any high-volume move above its 200-day at $18.32 to $19 with volume will then give AVP a chance to re-fill some of its previous gap-down-day zone from last November that started at $22.69.
Traders can look to buy AVP off weakness to anticipate that breakout and simply use a stop that sits right below some key near-term support levels at $14.27 to $14.18 a share. One can also buy AVP off strength once it busts above those breakout levels share with volume and then simply use a stop that sits a comfortable percentage from your entry point.
Nymox Pharmaceutical
Another stock that's starting to move within range of triggering a big breakout trade is Nymox Pharmaceutical (NYMX), which engages in the research and development and commercialization of drugs and diagnostic products for the aging population in the U.S., Canada, Europe, and other countries. This stock has been hit hard by the sellers over the last six months, with shares trending lower by 20%.
If you look at the chart for Nymox Pharmaceutical, you'll notice that this stock has recently formed a triple bottom chart pattern at $5.20, $5.25 and $5.26 a share. This stock has started to bounce higher off those key support levels and it's started to push back above its 50-day moving average of $5.59 a share with decent upside volume flows. That move is starting put shares of NYMX 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 NYMX if it manages to break out above some near-term overhead resistance levels $5.83 to $5.98 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 action of 56,650 shares. If that breakout gets underway soon, then NYMX will set up to re-test or possibly take out its next major overhead resistance levels at its 200-day moving average of $6.34 a share to $6.78 a share, or even $7 to 7.15 a share. Any high-volume move above those levels will then give NYMX a shot to tag $7.50 to $8 a share.
Traders can look to buy NYMX off weakness to anticipate that breakout and simply use a stop that sits right below those triple bottom support levels or around more key support at $5.02 a share. One can also buy NYMX 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.
iShares Silver Trust
My final breakout trading prospect is exchange-traded fund iShares Silver Trust (SLV), which seeks to reflect generally the performance of the price of silver. This stock has done much over the last six months, with the ETF trading lower by 7%.
If you look at the chart for iShares Silver Trust, you'll see that this ETF recently pulled back from its February high of $21.30 to its recent low of $18.87 a share. Following that pullback, shares of SLV have started to trend sideways between just under $19 on the downside and around $19.50 on the upside. Shares of SLV are now starting to trend modestly higher and move within range of triggering a near-term breakout trade.
Traders should now look for long-biased trades in SLV if it manages to break out above some near-term overhead resistance at $19.50 a share and then once it takes out both its 50-day at $19.76 and its 200-day at $20.07 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 7.42 million shares. If that breakout triggers soon, then SLV will set up to re-test or possibly take out its next major overhead resistance levels $20.92 to $21.30 a share. Any high-volume move above those levels will then give SLV a chance to tag $22 to $24, or even $25 a share.
Traders can look to buy SLV off weakness to anticipate that breakout and simply use a stop that sits right around some near-term support at $18.87 a share or near $18.26 a share. One can also buy SLV 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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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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