Dr. Seuss' Bag of Breakouts

 | Jun 12, 2014 | 10:30 AM EDT
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I try not to restrain my scans too much these days. For a while, I only wanted to see big names I recognized. Then I wanted to populate as many biotech names as I could, since they've been great for trading. Now I just let the chips fall where they may, especially for intraday setups. Overnight -- when it comes to any trade which will be going to bed with me -- I'm still hesitant on the big names, since they will often move with the index they belong. When big names do appear, I will try to glance at their correlation to a few major indices in order to see if I want to give them any attention.

When the markets are near new highs, the breakout scan list is usually large. I mentioned this the other day. Still, even a large list is full of opportunity for those willing to take the time and go through it. Right or wrong, though, I have to narrow it down. Trying to watch 50 or 100 names for a breakout is just too much for most traders. I like to get the list down to 15 or 20. If I happen to miss a breakout because I've excluded the name, then so be it. There will be other days and other opportunities.

Here are the result from a scan I ran on Wednesday, which resulted in a nice mix of names. Looking at these, I felt a bit like Dr. Seuss. Some are big. Some are small. Some breakouts are short and some are tall.

Breakout Scan Charts -- Two Months
Source: StockCharts.com

Without overcomplicating things, above are the resulting two-month charts of my watch list this morning. I put on very basic resistance levels, along with the 20- and 50-day moving averages. I tried to only include names that are above both of those moving-average lines, but I did include Intuitive Surgical (ISRG) -- a name I mentioned Wednesday -- because of the gap-fill potential. Once I establish the trend and breakout levels at the two-month mark, I will move to a longer time frame.

Below, now, are the six-month charts for the same names. Some of these, which looked great at two months, are a bit different when viewed through the six-month lens.

Breakout Scan Charts -- Six Months
Source: StockCharts.com

For instance, Brightcove (BCOV) is trying to break out of a nasty downtrend, as are LinkedIn (LNKD) and Intuitive Surgical. Names such as Harvest Natural Resources (HNR) and Office Depot (ODP) become even more intriguing when I see how little resistance -- none, in fact -- is in front of them on a six-month time frame. The six-month period also paints a great picture for Dex Media (DXM) and Nvidia (NVDA), which are currently my favorite two names on the smaller side.

Ideally, I would see four or five names enter breakouts. A name such as Concho (CXO) would be a shorter-term play, along with either Intuitive Surgical or maybe Dex. The longer-term swing trade, meanwhile, would be something like Harvest Natural, Brightcove or Office Depot. The key is to have opportunities in front of you; to explore them more extensively than at a skin-deep level; and to be willing to act when a breakout is triggered.



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