Utilizing a breakout investment strategy is a natural choice for active investors who settle for nothing less than superlative returns. This involves zeroing in on stocks trading within a tight range and buying them when they step out of this band. In keeping with this approach, they are offloaded whenever they move below this narrow band. If properly implemented, such a strategy could deliver impressive returns.
Determining 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.
Has a Breakout Really Occurred?
The central risk which accompanies 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 breakout to actually happen, 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.
• 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 7892 stocks to only 21.
Here are the top five stocks that meet these criteria:
Hecla Mining Company HL is a leading low-cost U.S. silver producer with operating mines in Alaska and Idaho, and is a growing gold producer with an operating mine in Quebec, Canada. Hecla Mining has a Zacks Rank #1 (Strong Buy) and its average EPS surprise over the last four quarters is 20%.
Cloud Peak Energy Inc. CLD operates as a producer of low sulfur, high quality, sub-bituminous coal in the United States. Its average EPS surprise over the last four quarters is more than 100%. Cloud Peak Energy carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Celsion Corporation CLSN is dedicated to the development and commercialization of oncology drugs including tumor-targeting treatments using focused heat energy in combination with heat activated drug delivery systems. Celsion has a Zacks Rank #2 (Buy) and its average EPS surprise over the last four quarters 9.4%.
QuickLogic Corporation QUIK is a semiconductor provider of ultra-low power, comprehensive, flexible sensor processing solutions enabling significantly longer battery life for the Smartphone, Wearable, and IoT markets. QuickLogic has a Zacks Rank #2 and its average EPS surprise over the last four quarters is 9.2%.
Precision Drilling Corporation PDS is an oilfield services company. Precision Drilling has a Zacks Rank #2 and its average EPS surprise over the last four quarters is 38.6%.
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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Cloud Peak Energy Inc (CLD) : Free Stock Analysis Report
QuickLogic Corporation (QUIK) : Free Stock Analysis Report
Celsion Corporation (CLSN) : Free Stock Analysis Report
Hecla Mining Company (HL) : Free Stock Analysis Report
Precision Drilling Corporation (PDS) : Free Stock Analysis Report
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