As I reviewed and scanned several stock charts over the last few days, I found some stocks that offered good risk-reward on the long side. Especially if we see a year end stock market rally.
What I was looking for was stocks that were breaking out of price patterns, or stocks with pattern potential (fora breakout).
In each of these cases, the stocks are attempting to break out BUT need confirmation. If a follow through move to the upside occurs, then one can look for higher prices (i.e. these are potential breakout stocks).
As always, I viewed each stock chart from a risk discipline perspective, understanding that stops and targets are key for active investors.
Below are 4 potential breakout stocks and their accompanying stock charts to highlight the price action. Each stock chart is annotated and highlights my thoughts on each of these stocks.
1. Tenet Healthcare (THC)
Tenet Healthcare (THC) is a hospital and outpatient center operator that trades at a forward PE ratio of 15.6. Following a rally to over $60 in July, shares of THC have slid around 40 percent. If the stock can hold its next pullback and thrust higher, it will likely see a move back to the upper bollinger band and 50 day moving average (around $38/$39). A move above that level could bring a rally back to the 200 day moving average.
2. PowerShares DB US Dollar Bullish Fund (UUP)
The monster rally in the US Dollar ETF (UUP) that began in mid-2014 may still have some legs. The Bullish Dollar ETF (UUP) broke out of a declining consolidation channel last week and looks poised for a retest of the highs (and perhaps more). Friday’s jobs report is the likely culprit for the renewed US Dollar strength.
3. E-Commerce China Dangdang (DANG)
China’s Dangdang (DANG) is a tricky one. the stock has been relatively quiet over the last 4 months, forming what could be a bullish head and shoulders base pattern. HOWEVER, in my opinion it probably pays to wait until we see confirmation follow through above $7.00. If the stock can follow through higher on volume, then it could have eyes for $8.00-$8.50.
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