Selecting breakout stocks continue to be one of the most popular methods utilized by active investors. This technique seeks to identify those stocks whose prices are varying within a specific band. In case a stock falls below the lower bound of this band, it may be time to offload it from your portfolio. However, a stock breaking above this channel carries the promise of delivering strong gains.
Spotting Breakout Stocks
The first step to selecting the right breakout stocks is to calculate their support and resistance levels. A support level is the lower bound for stock movements while a resistance level refers to the maximum price which it trades within over a considerable period.
In other words, the demand for a stock is at its lowest at its support level, which means most traders are willing to sell it. At the resistance level, most traders are willing to go long on the stock, which means that they would like to add them to their portfolios. The key to identifying breakout stocks is to pin down those that are on the verge of a breakout or those that have just broken above the resistance level.
Verifying Whether It’s for Real
Stocks which have breached their resistance level should ideally be in high demand among traders. But the test of whether this is a genuine breakout is whether they go on to attain higher prices and the old barrier becomes a new support. This is why it is important to determine whether a long-term price trend is about to emerge.
Only a study of long-term trends can determine whether the existing trading channel has been breached effectively. This indicates the strength of the support or resistance levels. If you can identify the effective channel for a stock, picking it even at a not-so-reasonable price would give you significant returns.
• 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 7106 stocks to only 12.
Here are five of the 12 stocks that passed the screen:
Kinross Gold Corp KGC is primarily involved in the exploration and operation of gold mines. Kinross Gold has a Zacks Rank #1 (Strong Buy) and its expected earnings growth for the current year is more than 100%.
Hallmark Financial Services, Inc. HALL and its wholly owned subsidiaries engage in the sale of property and casualty insurance products. Hallmark Financial’s expected earnings growth for the current year is 41.1%. Hallmark Financial has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Quarterhill Inc. QTRH is a diversified investment holding company. It is focused on growing its business by acquiring technology companies in the Industrial Internet of Things segment across multiple verticals. Quarterhill has a Zacks Rank #2 (Buy) and its expected earnings growth for the current year is more than 100%.
Sunny Optical Technology (Group) Company Limited SNPTF is engaged in the design, research and development, manufacture and sales of optical and optical-related products. Sunny Optical Technology has a Zacks Rank #2 and its expected earnings growth for the current year is 35.3%.
Monotype Imaging Holdings Inc. TYPE provides customers worldwide with typeface solutions for a broad range of creative applications and consumer devices. Monotype Imaging Holdings has a Zacks Rank #2 and its expected earnings growth for the current year is 15%.
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.
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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.
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Monotype Imaging Holdings Inc. (TYPE) : Free Stock Analysis Report
Hallmark Financial Services, Inc. (HALL) : Free Stock Analysis Report
Kinross Gold Corporation (KGC) : Free Stock Analysis Report
Sunny Optical Technology (Group) Company Limited (SNPTF) : Free Stock Analysis Report
Wi-LAN Inc (QTRH) : Free Stock Analysis Report
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