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

Target: 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

Target: 170

Useless: A close below 112 invalidates this trade call

 

Featured image courtesy of Shutterstock.

Kiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and funds, as he does his own crypto research and is a Product Manager at Mitre Media. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.