Selecting breakout stocks continue to be one of the most popular methods utilized by active investors. This technique seeks to identify those stocks whose prices are varying within a specific band. In case a stock falls below the lower bound of this band, it may be time to offload it from your portfolio. However, a stock breaking above this channel carries the promise of strong gains.
Spotting Breakout Stocks
The first step to selecting the right breakout stocks is to calculate their support and resistance levels. A support level is the lower bound for stock movements while a resistance level refers to the maximum price which it trades within over a considerable period.
In other words, the demand for a stock is at its lowest at its support level, which means most traders are willing to sell it. At the resistance level, most traders are willing to go long on the stock, which means that they would like to add them to their portfolios. The key to identifying breakout stocks is to pin down those that are on the verge of a breakout or those that have just broken above the resistance level.
Verifying Whether It’s for Real
Stocks that have breached their resistance level should ideally be in high demand among traders. But the test of whether this is a genuine breakout is whether 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 give you significant returns.
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.)
No matter whether the market is good or bad, stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) have a proven history of outperformance. You can see
. the complete list of today’s Zacks #1 Rank stocks here
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 $20 (Stocks which are reasonably priced.)
These criteria narrow down the universe of more than 7,527 stocks to only four.
Here are the four stocks that passed the screen:
Covanta Holding Corporation ( CVA Quick Quote CVA - Free Report) is a provider of waste and energy services to municipal entities. It carries a Zacks Rank #1 and has an expected earnings growth rate for the current year is more than 100%. Hallmark Financial Services, Inc. ( HALL Quick Quote HALL - Free Report) is an underwriter, marketer and distributor of property/casualty insurance products. The company sports a Zacks Rank #2 and has an expected earnings growth rate for the current year is more than 100%. RF Industries, Ltd. ( RFIL Quick Quote RFIL - Free Report) is a designer, manufacturer and distributor of coaxial connectors used in radio communications applications as well as in computers, test instruments, PC LANS and antenna devices. It carries a Zacks Rank #2 and has an expected earnings growth rate of more than 100% for the current year. ZTE Corporation ( ZTCOY Quick Quote ZTCOY - Free Report) is a provider of telecom equipment and networking solutions to telecom operators. The company sports a Zacks Rank #2 and has an expected earnings growth rate for the current year is more than 100%.
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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 .