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Utilizing a breakout investment strategy is a favored choice of active investors who are content only with returns superior to most other investments. This approach involves homing in on stocks trading within a tight range and acquiring them when they move out of this band. In keeping with this approach, they are sold whenever they move below this narrow band. If properly implemented, such a strategy could deliver impressive returns.
Identifying Breakout Levels
The key to this strategy is calculating the support and resistance levels of a stock. The floor of a stock’s trading channel is its support level and it should be sold as soon as it threatens to fall lower. On the other hand, the resistance is a stock's breakout level and it can gain substantially if it breaks the resistance level.
When a stock is close to its support level, demand is literally hitting the floor. On the other hand, demand rises when it is breaching its resistance level, signaling the right time to make a lucrative addition to your portfolio. The idea is to pick stocks which have just broken above their resistance barriers or are very closing to doing so.
Is This a Genuine Breakout?
The primary risk associated with such a strategy is that the decision to buy an apparent breakout candidate has been incorrectly timed. When a stock moves above the resistance level, it should be a highly prized commodity for traders. However, whether such a breakout is at all genuine is another matter altogether.
For a genuine breakout, the stock’s earlier resistance barrier should become its new support level. This only happens if the trading channel that has been established is tested by observing long-term price trends. The strength of the support and resistance levels can be ascertained only through such a study. Despite the risk of misidentification, correctly identifying such stocks can yield considerable returns, even at a price which may not seem attractive at first glance.
Screening Parameters
• Percentageprice change over four weeks between 10% and 20% (Stocks which are showing considerable price increases, but whose gains are not excessive.)
• Current Price /52-Week High greater than or equal to 0.9 (Stocks which are trading 90% close to their 52-week highs.)
• Zacks Rank less than or equal to #2 (Only Strong Buy and Buy rated stocks can get through.)
• Beta for 60 months less than or equal to 2 (Stocks which move by a greater degree than the broader market but within a reasonable limit.)
• Current price less than or equal to $20 (Stocks which are reasonably priced.)
These criteria narrow down the universe of over 7893 stocks to only five.
Crocs, Inc. (CROX - Free Report) is a world leader in innovative casual footwear for men, women and children. Crocs’ expected earnings growth for the current year is more than 100%.
Transcat, Inc. (TRNS - Free Report) distributes test and measurement instruments and provides accredited calibration services to a variety of industries. Transcat’s expected earnings growth for the current year is 3.1%.
Mobile TeleSystems offers telecom services in Russia, Turkmenistan, Ukraine and Armenia. Mobile TeleSystems’ expected earnings growth for the current year is 5.8%.
Regions Financial Corporation (RF - Free Report) together with its subsidiaries, provides banking and bank-related services to individual and corporate customers in the United States. Regions Financial’s expected earnings growth for the current year is 33.9%.
LATAM Airlines Group S.A. (LTM - Free Report) offers domestic and international passenger and cargo air services in South America. LATAM Airlines Group’s expected earnings growth for the current year is 82.1%.
You can get the rest of the stocks meeting these criteria by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and backtest them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
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.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »
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5 Breakout Stocks Offering Impressive Returns
Utilizing a breakout investment strategy is a favored choice of active investors who are content only with returns superior to most other investments. This approach involves homing in on stocks trading within a tight range and acquiring them when they move out of this band. In keeping with this approach, they are sold whenever they move below this narrow band. If properly implemented, such a strategy could deliver impressive returns.
Identifying Breakout Levels
The key to this strategy is calculating the support and resistance levels of a stock. The floor of a stock’s trading channel is its support level and it should be sold as soon as it threatens to fall lower. On the other hand, the resistance is a stock's breakout level and it can gain substantially if it breaks the resistance level.
When a stock is close to its support level, demand is literally hitting the floor. On the other hand, demand rises when it is breaching its resistance level, signaling the right time to make a lucrative addition to your portfolio. The idea is to pick stocks which have just broken above their resistance barriers or are very closing to doing so.
Is This a Genuine Breakout?
The primary risk associated with such a strategy is that the decision to buy an apparent breakout candidate has been incorrectly timed. When a stock moves above the resistance level, it should be a highly prized commodity for traders. However, whether such a breakout is at all genuine is another matter altogether.
For a genuine breakout, the stock’s earlier resistance barrier should become its new support level. This only happens if the trading channel that has been established is tested by observing long-term price trends. The strength of the support and resistance levels can be ascertained only through such a study. Despite the risk of misidentification, correctly identifying such stocks can yield considerable returns, even at a price which may not seem attractive at first glance.
Screening Parameters
• Percentage price change over four weeks between 10% and 20% (Stocks which are showing considerable price increases, but whose gains are not excessive.)
• Current Price /52-Week High greater than or equal to 0.9 (Stocks which are trading 90% close to their 52-week highs.)
• Zacks Rank less than or equal to #2 (Only Strong Buy and Buy rated stocks can get through.)
• Beta for 60 months less than or equal to 2
(Stocks which move by a greater degree than the broader market but within a reasonable limit.)
• Current price less than or equal to $20 (Stocks which are reasonably priced.)
These criteria narrow down the universe of over 7893 stocks to only five.
Here are the five stocks that meet these criteria. Each of these has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Crocs, Inc. (CROX - Free Report) is a world leader in innovative casual footwear for men, women and children. Crocs’ expected earnings growth for the current year is more than 100%.
Transcat, Inc. (TRNS - Free Report) distributes test and measurement instruments and provides accredited calibration services to a variety of industries. Transcat’s expected earnings growth for the current year is 3.1%.
Mobile TeleSystems offers telecom services in Russia, Turkmenistan, Ukraine and Armenia. Mobile TeleSystems’ expected earnings growth for the current year is 5.8%.
Regions Financial Corporation (RF - Free Report) together with its subsidiaries, provides banking and bank-related services to individual and corporate customers in the United States. Regions Financial’s expected earnings growth for the current year is 33.9%.
LATAM Airlines Group S.A. (LTM - Free Report) offers domestic and international passenger and cargo air services in South America. LATAM Airlines Group’s expected earnings growth for the current year is 82.1%.
You can get the rest of the stocks meeting these criteria by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and backtest them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
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.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »