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5 Stocks Setting Up to Break Out

Written by: Roberto Pedone 06/08/12 - 4:14 PM EDT
Tickers in this article: AMZN AAPL ZUMZ VTUS PSUN DGIT

I would look to buy AMZN off strength once it takes out $221.49 a share with high-volume. Simply use a stop a few percentage points below that level if the breakout triggers soon. I don't want to buy AMZN off weakness for this play since the stock could easily drop back towards its 50-day if it's not ready to break out soon. There is some near-term support at $215 that could be used as a reference point if the stock pulls back before triggering that break out.

Pacific Sunwear of California

Another stock in the retail complex that's trading very close to triggering a breakout trade is Pacific Sunwear(PSUN) . This is a specialty retailer rooted in the action sports, fashion and music influences of the California lifestyle. The company sells a combination of branded and casual apparel, accessories and footwear designed to appeal to teens and young adults. This stock is off to a flat start in 2012 with shares down 1.4%.

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If you look at the chart for Pacific Sunwear of California, you'll notice that this stock plunged big in the last three months, with shares dropping from a high of $2.54 to a recent low of $1.17 a share. During that massive drop, shares of Pacific Sunwear have consistently made lower highs and lower lows, which is bearish technical price action. That said, after hitting the low of $1.17 shares of PSUN has entered a new uptrend, with the stock now making higher highs and higher lows. This move is quickly pushing PSUN within range of triggering a major breakout trade.

Traders should now look for long-biased traders in PSUN if it can manage to trigger a break out above some near-term overhead resistance at $1.79 to $1.82 a share with high-volume. Look for a sustained move or close above those levels with volume that registers near or above its three-month average action of 523,562 shares. If we get that move soon, then PSUN could easily re-test its March high of $2.54 a share and possibly take that level out to the upside.

I would look to play PSUN off weakness as long as it holds a trend above its 50-day moving average of $1.48 or at least above some near-term support at $1.40 a share. Those are the areas I would set stops if you buy off weakness. If you want to play PSUN off strength, get long once it takes out $1.79 to $1.82 with high-volume, and then simple place a stop a few percentage points below those levels.