Today's Entry: GOOG

I bought GOOG on the breakout today. Stop is at $548.

SPY Breakout

Nice looking breakout on the SPY chart. I will look to buy a dip today. If by chance the breakout fails at close, I will reverse and get short.

Playing the Breakout Trading Range: IPHS

IPHS broke out in early August and is now developing a trading range between the breakout highs and lows. This has created a low risk set up. I would like to buy on a pullback to the $33-35 range with a target of $40 and a stop around $31-32.

Overall, the stock shows a nice volume pattern, stochastics are oversold and we have a nice uptrend in place. The only concern is the negative RSI divergence. This may set the stock up for failure on a retest of highs. Since that is the target, the breakout trading range trade still looks good.

APPL Buy Point and Negative Divergence

I am thinking about putting a buy stop in place for AAPL just above $190. As you can see from the chart, that would be the logical breakout entry.

A major concern of mine is the RSI divergence that is developing. Last year I did a study of breakouts accompanied by a negative RSI divergence. My findings surprised me. Contrary to popular opinion, the failure rate was about the same as without the divergence. However, and this is key, the rise is not as high. From where I'd have to place my stop, my reward to risk right now would only be 1.5:1.

I probably won't put in a buy stop since I can't monitor the volume with this type of entry. However, if I do so a volume surge I may jump in.

You guys can probably tell I'm conflicted about this trade setup.

Watchlist and Trade

Here are the stocks that made my weekly watchlist:

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I bought CRK on today's breakout, using a buy stop with a limit place just above the consolidation area.

Today's Breakout: MA

The street must have liked MA's earnings results. This is one of the few stocks that has defied my volume analysis. Stocks floating up on poor volume are usually setup for a fall, especially around earnings. Think POT for a good example of this. MA is now on my breakout-pullback watchlist.

Monday Breakouts

Here are two breakouts that interest me:

ISYS
I would like to buy this one on a pullback to the breakout point. Nice trending stock with good volume pattern.



ALRP
Similar to ISYS, the only major difference is the overall price trend has been more volatile.

Breakouts with Strong Volume Trends

Friday's nightly breakout scan listed just over 100 stocks. An easy way to trim the fat and find good setups to trade is to sort breakouts by obv ranking. This will find breakout stocks with strong volume patterns. Here are Friday's top 25:

The Trade I Did Not Make

There is a lot to like about the breakout in GRA. The stock gapped up 3 points on huge volume over price resistance and had mounted the 200 day moving average a couple of days before. the 50 day moving average is moving up and looks ready to cross the 200 day. RSI and stochastics show significant strength. OBV is breaking out. Looks like the perfect breakout or breakout-pullback play.

What stopped me from making the trade is the fact that the stock did not close near the high of the long bar. That's quite early for profit taking on a breakout, so I decided to pass.

I have never tested breakouts that close near the low of the day, but still gap over resistance. This will likely be my next research project.

The Frustration of Waiting for a Pullback

One of the most frustrating things about the breakout-pullback setup is when you've got a textbook breakout out of a base, the stock heads your watchlist, and instead of pulling back to any measure of support the stock keeps going and going.

Last Thursday KEX's breakout put it at the top of my watchlist. I loved the setup. We had a breakout on high volume out of a base that mounted powerfully through resistance.

My dilemma at the time was to buy two points away from support, at around $52, or wait for a pullback to $50. I decided to wait. Three days later the stock is at $56.76.



I am not sure what is more frustrating, missing a move that does not pullback or buying a breakout and waiting forever as it consolidates its gain. Experience has lead me to a few theories on the conditions that lead to each of these outcomes, and I've spent the better part of my free time the past month researching hundreds breakouts, in both bull and bear markets, going back 8 years.

My research is not complete, but there are a few factors that seem to indicate a move sans pullback. One factor goes completely against conventional wisdom.

The Breakout Scan is Broken

Only 15 stocks made my breakout scan, and of those, three of them were ultrashort ETFs. Three of the stocks on the list interest me. Take a look at their charts and try to figure out the breakout plays.

Analyzing Today's Trade: WMS

I bought 400 shares of WMS at $39.05, based on my breakout-pullback trading setup. The stock broke on strong volume earlier this month, while pulling back on diminishing volume. Today's confirmation candle at two tiered support (20 day moving average and price) provide the entry signal. Also note that OBV is in a strong uptrend and stochastics are oversold and turning up.

























Take a look at the chart and note the difference between the current breakout (green arrow) and the December failed breakout (blue arrow). What is the key difference between the two breakouts?

Accumulation. You here me talk about it all the time, and this chart provides a great example of how important it is to monitor accumulation patterns. The December breakout was destined to fail, as up volume barely moved as price climbed. OBV during this period stayed within a mediocre range, further questioning the breakout.

Now look at the current breakout. Not only is price breaking out, but OBV is as well. Volume is motoring higher, and today's confirmation move was on above average volume as well. This leads me to believe we will at least retest the recent high.

Bullish Chart Setup: DVN

Independent oil and gas stocks have been on fire since bottoming late January (that long tail provided a good entry point), and few have done better than DVN (Devon Energy Corp). I like the stock on a pullback to what looks like new support at $95. The stock exhibits a nice accumulation pattern and could make another move higher.

Copper Stocks Breaking Out

Some of my best trades have come when I was wrong about a position and decided to go the other way with it. I am hoping today's trade ends up falling into this category.

I was short PCU as it had presented itself as a good short candidate. I was stopped out on today's breakout, and have now reversed my position, going long 50 shares.

Today's breakout over resistance makes it clear that this stock is now a long candidate. Besides the breakout, we also see recent accumulation and a positive RSI divergence. I am not sure if the stock has truly bottomed, so this is a short term long play. I may add to the position on a pullback to the breakout point.

Mastercard's Bullish Reversal

MA (Mastercard) has been on my bearish short watchlist every since it broke down below the 50 day moving average on heavy volume. However, the stock's technical pattern made a 180 degree reversal in one day, with today's 28 point gain that easily put it back over the moving average and close to making a 50 day high. I'd like to see a bit of consolidation to digest today's gains and enter on a low volume pullback or breakout to new highs.

Trade Notes

I exited DCO at 42 (entry at$38.10) for a $1170 gain (+10.1%) . The setup was an earnings breakout-pullback. I will re-enter on a pullback to $40.

I exited 200 shares of NOV at $67.35 (entry at $63.74) for a $722 gain (+5.7%) . This was an oversold bounce play that now looks like a good deat cat bounce short. I may short it later today.

I exited OII at $67.04 (entry at $62.50) for a $908 gain (+7.5%). Same setup as NOV.

I covered my VMW short at $94.46 (short at $89.10) for a 1072 loss (-6.1%). I still like this as a short. Volume on upmove is low. It's just bouncing more than I expected.

I am short another 200 shares of QID at $38.75.

I am short another 200 shares of TOL at $22.44.

Friday's Breakouts

I am looking for orderly pullbacks in the following breakout stocks:

Five Explosive Breakouts

Here are five explosive breakouts that I will be watching very closely:

Short Squeeze Play: SRDX

SRDX, a drug stock, broke out over price and moving average resistance on huge volume today. While that's fine and dandy, what's really interesting is that it has a 30 percent short interest ratio. To put this number in perspective, breakout stocks make my short squeeze setup if the ratio is 10 percent or higher. Of the 125 stocks that were on my 3 percent +20 breakout scan, only two stocks came in above 20 percent short.

Do ya think the shorts that came home from a hard day of work and checked there portfolios this evening are panicking? I wouldn't be surprised to see more upside here. A stock that print a huge gap always worries me (since the gap point is so far way), so if I do enter I will use a tight stop just under today's price action, probably in the $42-43 range.

Watchlist

I like COG on a pullback to $40. I am already in with a 500 share position, as I had a buy stop that triggered at $40.05 (I mentioned this stock on the video webcast this morning).


Other stocks on my radar: NFX, HEI, IOC, CYNO, VRGY, JCG, BKE, SII, BYD, BEAV, RIO, NBL, CYTC, AKS, TOPP, TMX, MT, MTOX, OII, SSYS, FTK