These Breaking Out Stocks Offer Handsome Returns
The S&P 500 Index (SPX) has finally closed above the 2,600 resistance. This is good news for investors as breach of that level supports our bullish bias. However, the breakout occurred with very light volume. The index must stay above the 2,600 mark in the next few days to validate the move. Return of market participants from the holidays might just give the index a healthy boost.
As we remain bullish on the index, let’s look at breaking out stocks with attractive profit potentials.
CF – CF Industries Holdings Inc
CF made its five-year high of 70.32 July 2015, but unfortunately, the name has lost all bullish momentum when it failed to hold critical support at 52 several weeks later. It went into a deep downtrend until it managed to establish support at 20 almost one year later. However, investors have a lot of reasons to rejoice as CF appears ready to breakout and reverse its trend.
Technical analysis reveals a large reversal pattern that might give the stock the momentum it needs to reclaim 52. However, CF must first take out immediate resistance at 36 with volume of at least 10 million in the daily chart. Interestingly, the stock has filled the gaps it made on September and October which is another encouraging sign for the bulls. Range is also tightening, indicating that the stock will make its move soon.
The strategy is to wait for the stock breakout at 36 with the required volume. The stock has immediate support at 34 first, 32 next, and then 29.
Weekly CF Chart
Monthly CF Chart
Summary of Strategy
Buy: breakout at 36 with 10 million volume
Support: 34, 32, and 29
Resistance: 40, 44,48, and 52
Useless: A close below 29 negates this view
CVX – Chevron Corp
CVX reached a 5-year high of 135.10 in July 2014, but just like CF Holdings, the stock came crashing after failing to hold a critical support level. In the case of CVX, that level is 120. The stock lost almost half of its value, when it established support at 70 a year later. The stock has rallied since and it is now looking to reclaim 120.
CVX briefly went above 120 last month, but it was sent back. To breach 120, bulls must get a volume of 15 million on the daily chart. Otherwise, bears maintain control of that resistance. So, the strategy is to wait for volume confirmation before placing buy orders at 120. However, you also have the alternative to wait for the stock to dip, and buy it for cheap, between prices of 114 and 112.
Once the stock breaches 120 with heavy volume, we are likely to hit 125 first, 129 next, and 134 last. Take out 134, and we have a clear path to the target of 170.
Weekly CVX Chart
Monthly CVX Chart
Summary of Strategy
Buy: breakout at 120 with 15 million volume
Support: 118, 116, 114, and 112
Resistance: 125, 129, 134
Useless: A close below 112 invalidates this trade call
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