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Selecting breakout stocks is probably one of the most favored techniques among active investors. The idea behind this kind of stock selection is to determine which stocks are trading within a narrow channel. These stocks are to be bought as soon as they move above this band and sold when they fall below. In case a stock moves above this band, it usually gains momentum.
However, market watchers warn against incorrectly timing such a move. This is because of the significant risk of identifying stock movements as breakouts, which in reality are not so. At the same time, when this strategy is utilized judiciously, it yields substantive gains, which is the reason why it remains popular.
Spotting Prospective Candidates
In order to identify breakout stocks, you must first determine their resistance and support levels. A resistance level is the barrier which must be broken so as to be identified as a breakout stock. Meanwhile, a support level is the floor for the stock’s movement.
At the breakout level, demand for the stock has peaked, making it a natural choice for traders. On the other hand, when a stock hits the support floor, traders are eager to offload it. In order to spot breakout stocks, you would have to see which of these are on the brink of breaking the resistance barrier or those which have just breached this level.
Determining Whether It’s for Real
Stocks which have breached their resistance level should ideally be in high demand among traders. But the test of whether this is a genuine breakout is when they go on to attain higher prices and the old barrier becomes a new support. This is why it is important to determine whether a long-term price trend is about to emerge.
Only a study of long-term trends can determine whether the existing trading channel has been breached effectively. This indicates the strength of the support or resistance levels. If you can identify the effective channel for a stock, picking it even at a not-so-reasonable price would lead to significant returns.
Screening Parameters
• Percentageprice change over four weeks between 10% and 20% (Stocks which are showing considerable price increases, but whose gains are not excessive.)
• Current Price /52-Week High greater than or equal to 0.9 (Stocks which are trading 90% close to their 52-week highs.)
• Zacks Rank less than or equal to #2 (Only Strong Buy and Buy rated stocks can get through.)
• Beta for 60 months less than or equal to 2 (Stocks which move by a greater degree than the broader market but within a reasonable limit.)
• Current price less than or equal to $15 (Stocks which are reasonably priced.)
These criteria narrow down the universe of over 7,700 stocks to only eight.
Here are the top five stocks that meet these criteria:
IntraLinks Holdings, Inc. is a global provider of Software-as-a-Service solutions for securely managing content, exchanging critical business information and collaborating within and among organizations. It has a Zacks Rank #1 (Strong Buy) and its average EPS surprise over the last four quarters is 88.9%.
KVH Industries, Inc. (KVHI - Free Report) is a leading provider of in-motion satellite TV and communication systems. KVH Industries has a Zacks Rank #1 and its average EPS surprise over the last four quarters is more than 100%.
McDermott International Inc. is an engineering and construction company, solely focused on the offshore oil and gas business. It has a Zacks Rank #1 and its average EPS surprise over the last four quarters is more than 100%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Genesis Healthcare, Inc. (GEN - Free Report) provides long-term care, assisted/senior living and rehabilitation therapy. It has a Zacks Rank #2 (Buy) and its average EPS surprise over the last four quarters is 25.8%.
Heritage Oaks Bancorp acts as a bank holding company of Heritage Oaks Bank. It has a Zacks Rank #2 and its average EPS surprise over the last four quarters is 2.3%.
You can get the rest of the stocks meeting these criteria by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and backtest them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »
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5 Breakout Stocks for Outstanding Returns
Selecting breakout stocks is probably one of the most favored techniques among active investors. The idea behind this kind of stock selection is to determine which stocks are trading within a narrow channel. These stocks are to be bought as soon as they move above this band and sold when they fall below. In case a stock moves above this band, it usually gains momentum.
However, market watchers warn against incorrectly timing such a move. This is because of the significant risk of identifying stock movements as breakouts, which in reality are not so. At the same time, when this strategy is utilized judiciously, it yields substantive gains, which is the reason why it remains popular.
Spotting Prospective Candidates
In order to identify breakout stocks, you must first determine their resistance and support levels. A resistance level is the barrier which must be broken so as to be identified as a breakout stock. Meanwhile, a support level is the floor for the stock’s movement.
At the breakout level, demand for the stock has peaked, making it a natural choice for traders. On the other hand, when a stock hits the support floor, traders are eager to offload it. In order to spot breakout stocks, you would have to see which of these are on the brink of breaking the resistance barrier or those which have just breached this level.
Determining Whether It’s for Real
Stocks which have breached their resistance level should ideally be in high demand among traders. But the test of whether this is a genuine breakout is when they go on to attain higher prices and the old barrier becomes a new support. This is why it is important to determine whether a long-term price trend is about to emerge.
Only a study of long-term trends can determine whether the existing trading channel has been breached effectively. This indicates the strength of the support or resistance levels. If you can identify the effective channel for a stock, picking it even at a not-so-reasonable price would lead to significant returns.
Screening Parameters
• Percentage price change over four weeks between 10% and 20% (Stocks which are showing considerable price increases, but whose gains are not excessive.)
• Current Price /52-Week High greater than or equal to 0.9 (Stocks which are trading 90% close to their 52-week highs.)
• Zacks Rank less than or equal to #2 (Only Strong Buy and Buy rated stocks can get through.)
• Beta for 60 months less than or equal to 2 (Stocks which move by a greater degree than the broader market but within a reasonable limit.)
• Current price less than or equal to $15 (Stocks which are reasonably priced.)
These criteria narrow down the universe of over 7,700 stocks to only eight.
Here are the top five stocks that meet these criteria:
IntraLinks Holdings, Inc. is a global provider of Software-as-a-Service solutions for securely managing content, exchanging critical business information and collaborating within and among organizations. It has a Zacks Rank #1 (Strong Buy) and its average EPS surprise over the last four quarters is 88.9%.
KVH Industries, Inc. (KVHI - Free Report) is a leading provider of in-motion satellite TV and communication systems. KVH Industries has a Zacks Rank #1 and its average EPS surprise over the last four quarters is more than 100%.
McDermott International Inc. is an engineering and construction company, solely focused on the offshore oil and gas business. It has a Zacks Rank #1 and its average EPS surprise over the last four quarters is more than 100%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Genesis Healthcare, Inc. (GEN - Free Report) provides long-term care, assisted/senior living and rehabilitation therapy. It has a Zacks Rank #2 (Buy) and its average EPS surprise over the last four quarters is 25.8%.
Heritage Oaks Bancorp acts as a bank holding company of Heritage Oaks Bank. It has a Zacks Rank #2 and its average EPS surprise over the last four quarters is 2.3%.
You can get the rest of the stocks meeting these criteria by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and backtest them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »