KCG - Article - Trading stocks that trigger major breakouts can lead to massive profits

5 Stocks Poised for Breakouts - views

Stock Quotes in this Article: CGR, HTZ, KCG, TGB, UBNT

By Roberto Pedone

Senior Contributor

08/24/12 - 12:31 PM EDT

WINDERMERE, Fla. (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 recent example of a successful breakout trade that I flagged was biotechnology and drugs player Rosetta Genomics (ROSG). In “5 Stocks Under $10 Set to Soar” on Aug. 9, I mentioned that ROSG was nearing some major previous support levels at $4 to $3.75 a share, and that the stock was extremely oversold. I said that ROSG was poised for a monster bounce if the stock held those levels, and if big upside volume started to flow into the name.

Now, technically, I didn’t mention any breakout levels in that article, since none had developed at that time with the stock trending near those previous support levels. That said, I did tweet out continued commentary on ROSG as the trade setup, and then the stock went on to trigger a major breakout.

Shares of ROSG exploded higher on Wednesday by around 40% as it triggered a major breakout trade above a number of key overhead resistance levels at $4.85 to $5.23 a share with massive volume. As I write this piece, ROSG is up another 7% today as the stock continues to advance above its 200-day moving average of $6.10 a share. If this uptrend continues for ROSG, then this stock will setup to trigger another breakout trade above its 50-day moving average of $8.65 a share.

Knight Capital Group

A stock in the investment services complex that’s trending within range of triggering a near-term breakout trade is Knight Capital Group (KCG), a global financial services firm that provides access to the capital markets across multiple asset classes to a network of clients, including buy- and sell-side firms and corporations. This stock has been hammered by the bears so far in 2012, with shares down by over 75%.

If you look at the chart for Knight Capital Group, you’ll notice that this stock plunged and gapped down huge earlier this month from around $10.50 to its recent low of $2.27 a share with massive volume. That crash has pushed KCG into extremely oversold territory, since its current relative strength index (RSI) reading is now 20.88. Following that crash, shares of KCG have now started to uptrend a bit with the stock making lower highs from $2.27 to $2.75 a share. If that pattern can hold, then KCG has a chance of triggering a near-term breakout trade.

Taseko Mines

One stock that looks poised to trigger a major breakout soon is Taseko Mines (TGB), which is focused on the production of copper and molybdenum from the Gibraltar mine and on permitting the New Prosperity gold and copper project. This stock has been beaten down by the sellers during the last six months, with shares off by over 30%.

If you take a look at the chart for Taseko Mines, you’ll notice that this stock has formed a major bottoming chart pattern over the last three months, with shares finding buying interest whenever its traded down to $2.45 to $2.46 a share. Following that double bottom chart pattern, shares of TBG have started to uptrend back above its 50-day moving average of $2.65 a share with decent volume. That move has now pushed TGB within range of triggering a near-term breakout trade.

Claude Resources

Another stock that looks ready to trigger a powerful breakout trade is Claude Resources (CGR), which is engaged in the acquisition, exploration, and development of precious metal properties and the production and marketing of minerals. Claude's mineral properties are located in northern Saskatchewan and northwestern Ontario. This stock has been crushed by the sellers so far this year, with shares off by over 45%.

If you take a look at the chart for Claude Resources, you’ll see that this stock has been trading range bound for the past four months, between 56 cents to 57 cents on the downside and 76 cents on the upside. That chart pattern has so far marked a triple bottom for CGR off of 56 cents per share. Now CGR is starting to recapture its 50-day moving average of 64 cents per share with decent volume. That move is quickly pushing CGR within range of triggering a major breakout trade.

Market players should now look for long-biased traders in CGR if this stock can manage to trigger a breakout trade above some near-term overhead resistance levels at 73 cents to 76 cents per 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 296,069 shares. If that breakout triggers soon, then CGR could explode to the upside and possibly hit its next major overhead resistance levels at 90 cents to $1.20 a share.

One can look to buy CGR off any weakness and anticipate that breakout, and simply use a stop that sits near its 50-day moving average of 64 cents per share. Or you could just buy off strength once CGR clears 73 cents to 76 cents per share with high volume, and then simply use a stop somewhere around 67 cents per share. I would add to either position once CGR closes above 76 cents per share with heavy volume.