Breakout stocks are always searched by active investors. In other words, investors look for stocks whose prices are fluctuating within a specific band. It’s prudent to offload the stock if it falls below the lower bound of this band. Similarly, once the stock breaks above this channel, it has all the chance of delivering 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 it trades 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, meaning they would like to add them to their portfolio. The key to identifying breakout stocks is to pin down those on the verge of a breakout or those that have just broken above the resistance level.
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 attain higher prices and the old barrier becomes 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 showing considerable price increases, but whose gains are not excessive.)
Current Price /52-Week High greater than or equal to 0.9 (Stocks trading 90% close to their 52-week highs.)
Zacks Rank less than or equal to #3 (Only Strong Buy, Buy and Hold rated stocks can get through.)
No matter whether the market is good or bad, stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) 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 that move by a greater degree than the broader market but within a reasonable limit.)
Current price less than or equal to $20 (Stocks that are reasonably priced.)
These criteria narrow down the universe of more than 6,853 stocks to only seven. Here’re the three stocks to watch:
Solaris Oilfield Infrastructure ( SOI Quick Quote SOI - Free Report) manufactures and provides patented mobile proppant management systems which unload, store and deliver proppant at oil and natural gas well sites. Solaris Oilfield Infrastructure currently carries a Zacks Rank #2. SOI has an expected earnings growth rate of 1,166.67% for the current year. Alliance Resource Partners ( ARLP Quick Quote ARLP - Free Report) is a diversified producer and marketer of coal to major U.S. utilities and industrial users. Alliance Resource Partners currently carries a Zacks Rank #3. ARLP has an expected earnings growth rate of 127.9% for the current year. Richardson Electronics ( RELL Quick Quote RELL - Free Report) is a global provider of Engineered Solutions, serving the RF, Wireless & Power Conversion; Electron Device; Security; and Display Systems markets. Richardson Electronics currently carries a Zacks Rank #3. RELL has an expected earnings growth rate of 264% for the current year.
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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.